Assessing the Dynamic Interlinks between Government Expenditure and Government Expenditure Financing Modes �Evidence from Ghana

Abstract

One of the issues in economics which has continued to receive profound attention is fiscal management. This is because it is believed that the quality of the fiscal management within a given economy has far reaching implications for the health of that economy. In developing countries especially, fiscal policy and management have persistently undermined their growth and development prospects. This study aims at adding to the existing knowledge on fiscal behaviors, using the Ghanaian situation, particularly identifying the effects of the government borrowing modes on government spending and revenue mobilization behaviour by proposing that the effects of the borrowing modes on the revenue streams may not necessarily be the same. The study modifies the Franco-Rodriguez government utility maximization function and employs the vector autoregressive (VAR) system to establish the dynamic links among the borrowing modes, the revenue channels and government spending. Two variants of the model-aggregated and disaggregated government expenditure models are analyzed. Whilst one long run equilibrium relationship is uncovered in respect of government consumption expenditure for the disaggregated model, in the aggregate government expenditure model, two long run relationships are established for government expenditure and external borrowing. The long run estimates for government consumption expenditure indicate that it is inversely related to government capital expenditure, direct taxes, indirect taxes and domestic borrowing. In the short run, we discover that the impacts of the borrowing modes on the tax channels are different and it is recommended that in looking at how to manage the responses of these tax channels to borrowing, tax policy initiators take this into account in fashioning appropriate policies.

Shadow economy–financial sustainability nexus: the case of Palestine

“…This is because jobless people are forced to be more creative in order to fulfill their basic living expenses. As a result of the instability of the Palestinian economy and the scarcity of formal employment options, many Palestinians have turned to the informal “shadow economy.” Al-Far (2014), Anaman (2019), Dell'Anno and Davidescu (2019), Mansour and Zaki (2019), Schneider and Cambridge (2017) and Al-Namrouti and Al-Ostath (2016) found similar findings; therefore, our conclusion is in line with theirs.…”

“…This means that the extent of the shadow economy shrinks as government expenditure rises. Al-Far (2014), Anaman (2019), Dell'Anno and Davidescu (2019), Schneider and Cambridge (2017) and Al-Namrouti and Al-Ostath (2016) are only few of the researchers whose work supports this conclusion. The largest share of the Palestinian government's budget goes toward operational and developmental expenses, which help the average citizen and raise the country's standard of living.…”