The links between economic growth and tax revenue in Ghana: an empirical investigation

Abstract

This paper explores the causal influence of tax revenue on economic growth in Ghana. The causality analysis builds on a multivariate setup, allowing for key control variables to intermediate the nexus between tax revenue and economic growth. This enables the paper to overcome variable omission bias, allowing for efficient estimates of the test statistics of the Granger causality. In addition, the paper employs the Toda-Yamamoto test instead of the conventional Granger causality test to avoid pre-testing bias. Using a quarterly dataset which spans the period 1986Q1-2014Q4, we find 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 implication for policy is that the tax scope of the country should be expanded in order to increase the revenue from taxation.