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Tax burden, perceived fairness, and compliance in Ghana's tax system

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Listed:
  • Jörgen Levin
  • Emmanuel Orkoh

Abstract

Determining the optimal tax burden that maximizes compliance and revenue remains a major challenge in developing countries, partly due to the literature's focus on linear tax-compliance relationships. Using firm-level data from Ghana and an instrumental variable approach, this paper finds a nonlinear relationship: compliance rises with higher taxes up to a threshold of 45%, beyond which it declines. This threshold, more than double the average tax burden of 21%, varies by firm size and formality—medium-large firms (30%), micro (46%), small (49%), formal (41%), and semi-formal (46%).

Suggested Citation

  • Jörgen Levin & Emmanuel Orkoh, 2025. "Tax burden, perceived fairness, and compliance in Ghana's tax system," WIDER Working Paper Series wp-2025-91, World Institute for Development Economic Research (UNU-WIDER).
    • Handle: RePEc:unu:wpaper:wp-2025-91
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    References listed on IDEAS

    as
    1. Chernozhukov, Victor & Hansen, Christian, 2008. "The reduced form: A simple approach to inference with weak instruments," Economics Letters, Elsevier, vol. 100(1), pages 68-71, July.
    2. Gupta, Sanjay & Newberry, Kaye, 1997. "Determinants of the variability in corporate effective tax rates: Evidence from longitudinal data," Journal of Accounting and Public Policy, Elsevier, vol. 16(1), pages 1-34.
    3. Prianto Budi Saptono & Gustofan Mahmud & Fauzilah Salleh & Intan Pratiwi & Dwi Purwanto & Ismail Khozen, 2024. "Tax Complexity and Firm Tax Evasion: A Cross-Country Investigation," Economies, MDPI, vol. 12(5), pages 1-36, April.
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