Tax Revenue, Inflation, and Economic Growth: A Ghanaian Perspective

Over the years, Ghana’s macroeconomic frameworks have led to slow economic growth. This necessitates the revision of policies for macroeconomic control and the pursuit of pragmatic policies that enhance economic growth, which policymakers should prioritize when framing economic plans. This paper aims to explore the impact of key economic growth factors, such as tax revenue on economic growth in Ghana and the interactive effect of inflation on economic growth. We have used the methods of explanatory research and quantitative approaches to analyze the historical economic data for Ghana. This study examines the nexus between tax revenue and economic growth. In addition, it examines the multiplicative role of inflation in the relationship between tax revenue and economic growth in Ghana. The study uses secondary time series data collected for 19 years from 2005–2023 and employs the autoregressive distributed lag testing to cointegration estimation technique to analyze tax revenue growth, economic growth, foreign direct investment, policy rate, inflation, and government expenditure. The results showed that the tax revenue growth rate has a statistically significant positive relationship with economic growth in both the short and long run. In addition, the study revealed a statistically significant negative moderating effect of inflation in the relationship between tax revenue growth and economic growth in both the interim period and the long run. It was revealed that the impact of tax revenue on economic growth is more intense in the short run than in the long run. The key conclusion of the paper is that a rise in tax revenue facilitates economic growth more in the short run than in the long run in Ghana. Additionally, the rising cost of goods and services dampens economic growth, and inflation diminishes the enhancing effect of tax revenue on economic growth.