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Exchange Rate Volatility And Tax Revenue: Evidence From Ghana

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  • OFORI, ISAAC KWESI

Abstract

The need for the Ghanaian government to generate enough revenue for development is becoming increasingly crucial in the era of slow economic growth, growing unemployment and high debt. However, tax revenue performance over the years reveals an unstable pattern. One key factor that has been overlooked in the literature in terms of the determinants of tax revenue is exchange rate volatility. Coming from the background of volatility in Ghana's exchange rate, could it be the reason for the instability in the trend of tax revenue? This question is the subject matter of this study. To estimate the effect of exchange rate volatility on tax revenue, the study employed the Auto Regressive Distributed Lag (ARDL) technique after the yearly exchange rate volatilities had been generated using the GARCH(1,1) method. The results of the study suggest that exchange rate volatility has a deleterious effect on tax revenue both in the short-run and long-run but the effect is more pronounced in the long-run than the short-run. The study recommends that the Bank of Ghana step-up its exchange rate stabilization efforts to reduce exchange rate risk imposed on international trade players.

Suggested Citation

  • Ofori, Isaac Kwesi, 2017. "Exchange Rate Volatility And Tax Revenue: Evidence From Ghana," Working Papers a0166a78-21b0-4069-81da-b, African Economic Research Consortium.
    • Handle: RePEc:aer:wpaper:a0166a78-21b0-4069-81da-b4d9448f1c00
    Note: African Economic Research Consortium
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    File URL: https://publication.aercafricalibrary.org/handle/123456789/2006
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    JEL classification:

    • A1 - General Economics and Teaching - - General Economics
    • F1 - International Economics - - Trade
    • F35 - International Economics - - International Finance - - - Foreign Aid
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • H0 - Public Economics - - General
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

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