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Determinants of Tax Evasion in Ghana: 1970-2010

Author

Listed:
  • Betty Annan

    () (Department of Economics, University of Ghana, Box LG 57, Legon, Acca, Ghana)

  • William Bekoe

    () (Department of Economics, University of Ghana, Box LG 57, Legon, Acca, Ghana)

  • Edward Nketiah-Amponsah

    () (Department of Economics, University of Ghana, Box LG 57, Legon, Acca, Ghana)

Abstract

This paper investigates the factors that determine tax evasion in Ghana using time series data covering the period 1970-2010. Employing the currency demand approach, we obtained the estimates of the shadow economy and the level of tax evasion for the entire period. Using the bounds test technique of cointegration we found that the variables included in our ARDL model are bounded together. The short-run model indicates that per capita income, the average tax rate, age and inflation were positively and significantly associated with tax evasion while gender showed an inverse and significant relationship with tax evasion. The error correction term was negative, statistically significant and suggests that 45 per cent of the deviation from equilibrium tax evasion is corrected each year. In addition, the Granger causality test indicates that tax and inflation rates aid in predicting future levels of tax evasion in Ghana. The paper further discusses the policy implications of the findings.

Suggested Citation

  • Betty Annan & William Bekoe & Edward Nketiah-Amponsah, 2013. "Determinants of Tax Evasion in Ghana: 1970-2010," International Journal of Business and Economic Sciences Applied Research (IJBESAR), Eastern Macedonia and Thrace Institute of Technology (EMATTECH), Kavala, Greece, vol. 6(3), pages 97-121, December.
  • Handle: RePEc:tei:journl:v:6:y:2013:i:3:p:97-121
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    References listed on IDEAS

    as
    1. Bruno Chiarini & Elisabetta Marzano & Friedrich Schneider, "undated". "Tax rates and Tax evasion: an Empirical Analysis of the Structural Aspects and Long-Run Characteristics in Italy," Working Papers wp2009-1, Department of the Treasury, Ministry of the Economy and of Finance.
    2. Muhammad Farooq Arby & Muhammad Jahanzeb Malik & Muhammad Nadim Hanif, 2010. "The Size of Informal Economy in Pakistan," SBP Working Paper Series 33, State Bank of Pakistan, Research Department.
    3. Hildegart Ahumada & Facundo Alvaredo & Alfredo Canavese, 2007. "The Monetary Method And The Size Of The Shadow Economy: A Critical Assessment," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 53(2), pages 363-371, June.
    4. Andreas G. Georgantopoulos & Anastasios D. Tsamis, 2012. "The Interrelationship between Money Supply, Prices and Government Expenditures and Economic Growth: A Causality Analysis for the Case of Cyprus," International Journal of Business and Economic Sciences Applied Research (IJBESAR), Eastern Macedonia and Thrace Institute of Technology (EMATTECH), Kavala, Greece, vol. 5(3), pages 115-128, December.
    5. Klovland, Jan Tore, 1984. " Tax Evasion and the Demand for Currency in Norway and Sweden. Is There a Hidden Relationship?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 86(4), pages 423-439.
    6. Nikopour, Hesam, 2003. "Measuring the size of underground economy in Iran with emphasis on the incentives for evasion of insurance premium payment (1961 – 2001)," MPRA Paper 13176, University Library of Munich, Germany, revised 05 Feb 2009.
    7. Ahumada, Hildegart & Alvaredo, Facundo & Canavese, Alfredo, 2008. "The monetary method to measure the shadow economy: The forgotten problem of the initial conditions," Economics Letters, Elsevier, vol. 101(2), pages 97-99, November.
    8. Mete Feridun & Yaya Sissoko, 2011. "Impact of FDI on Economic Development: A Causality Analysis for Singapore, 1976 – 2002," International Journal of Business and Economic Sciences Applied Research (IJBESAR), Eastern Macedonia and Thrace Institute of Technology (EMATTECH), Kavala, Greece, vol. 4(1), pages 7-17, March.
    9. Kahnim Farajova, 2011. "Budget Deficit and Macroeconomics Fundamentals: The case of Azerbaijan," International Journal of Business and Economic Sciences Applied Research (IJBESAR), Eastern Macedonia and Thrace Institute of Technology (EMATTECH), Kavala, Greece, vol. 4(2), pages 143-158, August.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    tax evasion; bounds testing; error correction; granger causality; Ghana;

    JEL classification:

    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development

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