Fiscal autonomy, intergovernmental transfers and capital expenditure: evidence from Ghana

Purpose This study aims to examine whether fiscal autonomy (independent variable) influences intergovernmental transfers (dependent variable) and development-oriented expenditures proxied by capital expenditures (outcome variable) in Ghana's Metropolitan, Municipal and District Assemblies (MMDAs). Design/methodology/approach This study uses a balanced panel of 261 MMDAs, Ghana's local government units, over the period 2018–2024 (1, 827 observations) and applies panel regression, instrumental variable estimation, panel vector autoregression and spatial econometric models. Findings Fiscal autonomy was negatively associated with intergovernmental transfers, indicating that the transfer system may weaken local revenue mobilisation incentives. Simultaneously, fiscal autonomy had a positive and economically meaningful effect on capital expenditures, suggesting that internally generated revenue provides a more reliable basis for development-oriented spending than transfer dependence. Dynamic and spatial results further show that these effects persist over time and generate spillovers across neighbouring jurisdictions. Practical implications Transfer formulas should incorporate fiscal effort, improve predictability and reduce disincentives for local revenue generation. Strengthening local revenue systems and accounting for spatial interdependence can improve decentralisation outcomes. Originality/value The study shows how transfer design can reverse expected decentralisation incentives in a lower-middle-income country context and provides new evidence from Ghana using an integrated static, dynamic and spatial framework.