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Author(s): Emmanuel K. Asirifi, Evans O. N. D. Ocansey (Ph.D.).

Volume/Issue: Volume 8, Issue 4 (2025)

Page No: 164-193

Journal: African Journal of Accounting and Financial Research (AJAFR)

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Abstract:

This study assessed the influence of government financial activities on economic performance of Ghana, during the 2000 and 2024. Four interrelated fiscal aspects, namely, dynamics of public debt, tax revenue mobilization, government expenditure, and government employment were used. The study employed autoregressive distributed lag (ARDL) model, Error Correction Models (ECM) and threshold regressions to determine the short-term variations and long run equilibrium associations. This finding shows that all the short run effects of public debt, tax effort, capital expenditure, wage bill, inflation, and rate on GDP growth are generally weak and statistically insignificant implying that fiscal policy shocks in the study context do not generate immediate growth effects in Ghana. Nevertheless, the error-correction calculations across all the specifications do tend to be large, negative, and statistically significant, namely between -77-0.82, suggesting that the error is very quickly corrected, with this correction taking place on average between 77-82 percent a year. This highlights the idea that the fiscal sustainability, macro-fiscal credibility accolade and quality of spending is what binds growth in the long term. Also, persistent and effective capital investment has constructive long-term development impacts, whereas continued growth of the wage bill in absence of concomitant productivity advances dissipates fiscal room and pushes away development-energetic investments. These results suggest that the year-to-year variations of the fiscal policy become less relevant and there should be anchoring of debt within sound limits, improved domestic revenue mobilization via tax base broadening and taxing digitization, and guarding high quality capital investments against recurrent expenditure shoves, connecting wage bill control to productivity, and improving the systems of public investment to minimize implementation delays.

Keywords:

Dynamics of the public debt, Tax revenue mobilization, Government expenditure trends, Government financial practices, Economic growth, Fiscal sustainability, Macroeconomic stability.

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