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Exchange Rate Volatility and Tax Revenue: Evidence from Ghana

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  • Ofori, Isaac Kwesi
  • Obeng, Camara Kwasi
  • Armah, Mark Kojo

Abstract

The need for the Ghanaian government to generate enough revenue for development is becoming increasingly crucial in this era of slow 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 & Obeng, Camara Kwasi & Armah, Mark Kojo, 2018. "Exchange Rate Volatility and Tax Revenue: Evidence from Ghana," MPRA Paper 99857, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:99857
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    Cited by:

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    2. Ofori, Isaac K. & Asonngu, Simplice A., 2021. "Foreign Direct Investment, Governance and Inclusive Growth in Sub-Saharan Africa," MPRA Paper 108178, University Library of Munich, Germany.
    3. Mark K. Armah, 2024. "The effect of central bank credibility on economic growth and output volatility in inflation targeting regime," Journal of Social and Economic Development, Springer;Institute for Social and Economic Change, vol. 26(2), pages 619-640, August.
    4. Sinem Koçak, 2021. "Is Exchange Rate Volatility An Important Determinant Of Tax Revenues? Evidence From Turkey," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 24(81), pages 33-49, September.
    5. Ofori, Isaac Kwesi & Obeng, Camara Kwasi & Mwinlaaru, Yeltulme Pter, 2021. "Effect of Exchange Rate Volatility on Tax Revenue Performance In Sub-Saharan Africa," EconStor Preprints 233955, ZBW - Leibniz Information Centre for Economics.
    6. Narayan Sethi & Saileja Mohanty & Sanhita Sucharita & Nanthakumar Loganathan, 2020. "Tax Reform And Economic Growth Nexus In India: Evidence From The Cointegration And Rolling-Window Causality," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 65(06), pages 1699-1725, December.
    7. Thomas Habanabakize & Lerato Mothib & Precious Mncayi, 2021. "The Nexus between Government Revenue and Macroeconomic Indicators in South Africa," Eurasian Journal of Business and Management, Eurasian Publications, vol. 9(4), pages 258-267.
    8. Isaac K. Ofori & Pamela E. Ofori & Simplice A. Asongu, 2021. "Towards Efforts to Enhance Tax Revenue Mobilisation in Africa: Exploring Synergies between Industrialisation and ICTs," Research Africa Network Working Papers 21/058, Research Africa Network (RAN).
    9. Emmanuel Buabeng & Enock Kojo Ayesu & Opoku Adabor, 2019. "The Effect of Exchange Rate Fluctuation on the Performance of Manufacturing Firms: An Empirical Evidence from Ghana," Economics Literature, WERI-World Economic Research Institute, vol. 1(2), pages 133-147, December.

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    More about this item

    Keywords

    Exchange rate volatility; GARCH; tax revenue; trade openness; foreign aid; Ghana;
    All these keywords.

    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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