Capital Flight from Burkina Faso: Drivers and Impact on Tax Revenue

What is it about?

The drivers of capital flight and its effect on tax revenue have not been investigated in the literature for the case of Burkina Faso. We undertake a qualitative analysis, which concludes that capital flight is the result of ineffective regulation of foreign exchange operations, a permissive tax system, and collusion between a politico-administrative elite and the business sector. We also conduct an econometric analysis, which reveals that a decline in tax revenue and in the GDP growth rate, changes in economic policy regimes, and an increase in natural resource rents, external debt, and political violence induce substantial capital flight. The results show a negative impact of capital flight on tax revenue. The econometric results are consistent with the qualitative analysis with regard to mechanisms of capital flight in both the public and private sectors.

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Why is it important?

Capital flight reduces resources that could have been invested to create wealth in the originating countries. Capital flight is a major hindrance to the mobilization of domestic resources for development, implying that capital flight aggravates resource constraints and contributes to undermining long-term economic growth.

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