Abstract

Remittances represent a major source of external finance for developing economies, yet their contribution to domestic tax revenue remains theoretically ambiguous and empirically inconclusive. This study examines whether remittance inflows increase tax revenue in African countries and whether this relationship depends on the level of financial inclusion. Using panel data for ten major remittance-receiving African economies over the period 2004–2024, the paper employs a panel Autoregressive Distributed Lag (ARDL) model to estimate both short-run and long-run effects. To capture conditional dynamics, the analysis incorporates an interaction term between remittances and financial inclusion, allowing the effect of remittances on tax revenue to vary with the degree of financial system development. Additional controls include economic growth, trade openness, and corruption control. The results indicate that remittances have a positive and statistically significant impact on tax revenue in both the short and long run. Financial inclusion independently enhances tax revenue performance and plays a reinforcing role by strengthening the positive effect of remittances. The interaction term is positive and significant, suggesting that remittances contribute more effectively to tax revenue when financial systems facilitate the formalization of economic activity. This finding supports the view that the fiscal benefits of remittances operate primarily through consumption and formalization channels rather than through direct taxation. The study contributes to the literature by demonstrating that the remittance-tax revenue relationship is conditional rather than universal. It highlights the importance of financial inclusion as a structural mechanism that transforms external inflows into taxable economic activity. The findings imply that policies aimed at expanding financial access and promoting formal remittance channels can enhance domestic resource mobilization in African economies.