Assessing the Dynamic Interlinks between Government Expenditure and Government Expenditure Financing Modes –Evidence from Ghana
Emmanuel Atta Anaman

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.

Full Text: PDF     DOI: 10.15640/jfbm.v7n2a4