The government revenue and expenditure nexus: the sustainability of the implementation of the single spine salary structure in Ghana
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Date
July, 2015
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Abstract
The study examines the causal linkage and long run relationship between government revenue
and expenditures of government of Ghana over a times series spanning the period
2000-2014. We employed several econometric approaches including Engle-Granger two
step method, Johansen cointegration vector error correction models and ordinary least
squares regression with breakpoints based on Bai-Peron techniques to carry out the analysis.
We test for unit root using augmented Dickey-Fuller and Philips-Perron methods to
assess the series properties as well as checking for Ganger pairwise causality of the data
variables. Our results of the ADF and PP unit root tests suggests that the time-series are
not stationary at levels but stationary at the first di erencing. The findings from Granger
pairwise causality test suggests bidirectional causation from revenue to expenditure in
the long run supporting the synchronization hypothesis which is in dissenting view with
earlier researchers. Similarly, the result of the Engle-Granger cointegration test indicates
that a significant long term equilibrium relationship exist between the government revenue
and expenditure in excellent agreement with Johansen multivariate analysis. Finally, the
manually imposed structural breakpoints on the system to represent the pre- and postimplementation
of the single spine salary structure was found to be consistent with the
case when the manual imposition was relaxed for the system to detect the breakponts itself
against the government fiscal profile in the spanned period under study. The results
demonstrate that the long-term sustainability of the single spine salary structure would
be in looming doubt if government do not take pragmatic steps to improve its revenue generation assiduously.
Description
A Thesis submitted to the School of
Graduate Studiesin Partial Fulfillment of the Requirements for the Award of Masters in Business Administration(Finance Option) ,