Tax Revenue and Economic Growth in Ghana: A Cointegration Approach

This study examines the effect of tax revenue on economic growth in Ghana using quarterly data for the period 1986 to 2010 within the VAR framework. The study found that there exist both short run and long run relationship between economic growth and tax revenue. The result indicated a unidirectional causality between tax revenue and economic growth and it flows from tax revenue to economic growth. The result suggests that tax revenue exerted a positive and statistically significant effect on economic growth both in the long-run and short-run implying that tax revenue enhances economic growth in Ghana. The study recommended that the tax base need to be widened and the tax rates reduced in order to generate more revenue. It was recommended that the government should improve tax collection measures in order to generate more revenue so as to increase economic growth in Ghana.