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The Links between Economic Growth and Tax Revenue in Ghana: An Empirical Investigation

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  • Njindan Iyke, Bernard
  • Takumah, Wisdom

Abstract

This paper explores the causal influence of tax revenue on economic growth in Ghana. Our point of departure from the existing studies lies in the fact that we examine causality instead of the impact. The causality analysis performed in this paper builds on a multivariate setup, allowing for key control variables to intermediate the nexus between tax revenue and economic growth. Such a rich environment can overcome variable omission bias; thus allowing for efficient estimates of the test statistics of the Granger causality. In addition, we employed the Toda-Yamamoto test instead of the canonical Granger causality test to avoid pre-testing bias. Using a quarterly dataset which spans the period 1986Q1-2014Q4, we found strong evidence of unidirectional causal flow from tax revenue to economic growth in Ghana. This finding agrees with the existing finding that taxation can influence economic growth. The policy implication is quite clear. Ghana is a net borrower since the country regularly suffers from budget deficits. The policymaker can implement policies that enhance the tax scope in order to increase the revenue from taxation. For a country whose economy has a large share of black market activities, such a policy may be challenging to implement. Thus, such policies will require collective efforts from the policymaker and the players in the economy. To induce people to buy into these kinds of policies, the policymaker must first embrace accountability of the revenue raised from taxation. Productive government spending will appeal to the players of the Ghanaian economy whereas unproductive and unaccountable government spending will not.

Suggested Citation

  • Njindan Iyke, Bernard & Takumah, Wisdom, 2015. "The Links between Economic Growth and Tax Revenue in Ghana: An Empirical Investigation," MPRA Paper 67281, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:67281
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    References listed on IDEAS

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    Cited by:

    1. repec:taf:wjabxx:v:18:y:2017:i:3:p:380-392 is not listed on IDEAS
    2. Ho, Sin-Yu & Njindan Iyke, Bernard, 2017. "Does Financial Development Lead to Poverty Reduction in China? Time Series Evidence," MPRA Paper 78922, University Library of Munich, Germany.
    3. Bernard Njindan Iyke & Sin-Yu Ho, 2017. "The Real Exchange Rate, the Ghanaian Trade Balance, and the J-curve," Journal of African Business, Taylor & Francis Journals, vol. 18(3), pages 380-392, July.
    4. repec:ids:ijsuse:v:10:y:2018:i:4:p:340-359 is not listed on IDEAS
    5. Bakari, Sayef, 2018. "If France continues this strategy, taxes will destroy domestic investment and economic growth," MPRA Paper 88943, University Library of Munich, Germany.
    6. Ho, Sin-Yu, 2017. "The Macroeconomic Determinants of Stock Market Development: Evidence from Malaysia," MPRA Paper 77232, University Library of Munich, Germany.
    7. Bakari, Sayef, 2018. "If France continues this strategy, taxes will destroy domestic investment and economic growth," MPRA Paper 88944, University Library of Munich, Germany.
    8. Ho, Sin-Yu & Njindan Iyke, Bernard, 2018. "The Determinants of Economic Growth in Ghana: New Empirical Evidence," MPRA Paper 87123, University Library of Munich, Germany.
    9. Sin-Yu Ho, 2018. "Analysing the sources of growth in an emerging market economy: the Thailand experience," International Journal of Sustainable Economy, Inderscience Enterprises Ltd, vol. 10(4), pages 340-359.

    More about this item

    Keywords

    Causality; Economic Growth; Tax Revenue; Ghana;

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

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