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Asymmetric effect of tax systems on poverty and inequality: Exploring the distributional impact of domestic resource mobilization systems in Ghana

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  • Frank Adu
  • Imhotep Paul Alagidede
  • Dennis Boahene Osei
  • Michael Effah Asamoah

Abstract

Earlier studies have assumed the effect of tax systems on poverty and inequality to be symmetric by imposing linear specifications. In this study, we account for possible asymmetries by re-examining the effect of tax systems on poverty and inequality in Ghana. We rely on the Nonlinear Autoregressive Distributed Lag (NARDL) estimation techni que and time-series data from 1983 to 2016. The findings revealed that, while the nexus between tax systems and poverty is asymmetric, the reverse holds for the relationship between tax systems and inequality. Specifically, we establish that, while positive (negative) shocks in direct taxes raise (reduce) the level of poverty, the shocks in indirect and overall tax systems produce negative results. Moreover, the symmetric evidence is observed only for indirect taxes and inequality in the long-run, and the relationship is positive. We recommend for a poverty reduction strategy that is centered on tax reduction at all levels. Equally important is a policy that has a firm foundation in the indirect tax system to bridge the inequality in Ghana.

Suggested Citation

  • Frank Adu & Imhotep Paul Alagidede & Dennis Boahene Osei & Michael Effah Asamoah, 2023. "Asymmetric effect of tax systems on poverty and inequality: Exploring the distributional impact of domestic resource mobilization systems in Ghana," Cogent Economics & Finance, Taylor & Francis Journals, vol. 11(1), pages 2166211-216, December.
    • Handle: RePEc:taf:oaefxx:v:11:y:2023:i:1:p:2166211
    DOI: 10.1080/23322039.2023.2166211
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    Cited by:

    1. Mao Zheng & Xiaoguang Li & Zhilong Qin & Muhammad Tayyab Sohail, 2023. "Examining the Impact of Fiscal Resources on Anti-Poverty Expenditure: Evidence from China," Sustainability, MDPI, vol. 15(5), pages 1-17, March.
    2. Rong Ran & Lei Hua & Tingrou Li & Yejing Chen & Junfu Xiao, 2023. "Why Have China’s Poverty Eradication Policy Resulted in the Decline of Arable Land in Poverty-Stricken Areas?," Land, MDPI, vol. 12(10), pages 1-18, September.

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