The redistributive and welfare impact of fiscal policies in Ghana: new evidence from CEQ methodology

This study presents evidence on the effect of fiscal policies on poverty and inequality in Ghana for the 2017 fiscal year based on the Commitment to Equity (CEQ) assessment framework. Also, the CEQ framework was used to simulate the short-term distributional consequences (‘morning-after’ effects) of Ghana’s Free Senior High School (SHS) Policy and utility subsidies during the COVID-19 pandemic. We find that government spending and taxation in Ghana lowered inequality (Gini coefficient) by 5.94 percentage points. We also find a reduction in poverty rates, but this was mainly driven by in-kind benefits associated with public spending on health and more so education, without which poverty rate would have been higher. In its blanket form, the ‘morning-after’ effects of the Free SHS Policy was a marginal reduction in both inequality and poverty. We find further that in contrast to the effect of the blanket subsidy on water, the subsidies on electricity which had some elements of targeting reduced both poverty and inequality, but marginally. The findings underscore the need for more targeted subsidy and spending programmes to enhance their short-term poverty reduction and redistributive impacts.This study investigates the effect of fiscal policies on poverty and inequality in Ghana using the Commitment to Equity (CEQ) assessment framework. The study has far-reaching implications on development policy and also makes an empirical contribution to the literature with respect to the relationship between fiscal policies and welfare in developing countries. The study sheds light on the effectiveness of government fiscal policies at redistributing income, and how specific adjustments to taxation and social spending would mean for poverty and inequality. Indeed, the subject area of this study relates directly to Sustainable Development Goal (SDG) 10, which seeks to reduce inequality within and across countries, of which the redistributive impact of fiscal policy has been adopted as an official indicator. While the key results from this study are important for tracking SDG 10 in Ghana, they are also useful in guiding policy makers on choosing fiscal policy instruments that do not only address prevailing macroeconomic imbalances but also improve on poverty and inequality situation in Ghana.