Abstract:
Balancing government budget in the midst of trade liberalisation
requires reducing expenditure levels or increasing existing taxes and or
introducing new taxes. This study investigated the impact of the option of
increasing existing domestic taxes, value added tax, corporate tax and income
tax, to compensate for lost tariff revenue from trade liberalisation on poverty
at the national and household levels in Ghana.
A recursive dynamic computable general equilibrium and a
microsimulation model were used for the study for the period 2005 to 2015.
The main source of data was the 2005 Social Accounting Matrix. The policy
simulations implemented were trade liberalisation; trade liberalisation with
lost tariff revenue replaced by 31% upward adjustment in value added tax;
trade liberalisation combined with 50% increase in corporate tax; and finally,
trade liberalisation accompanied by 40% rise in income tax. The simulation
rates were enough to keep government revenue neutral.
The study concludes that trade liberalisation combined with value
added tax, corporate tax, and income tax, separately, reduce the incidence,
depth and severity of poverty. It is recommended that government uses all
three tax instruments with special emphasis on income tax to compensate for
shortfall in tariff revenue resulting from trade liberalisation.
