Asymmetric effect of tax systems on poverty and inequality: Exploring the distributional impact of domestic resource mobilization systems in Ghana

Earlier studies have assumed the effect of tax systems on poverty and inequality to be symmetric by imposing linear specifications. In this study, we account for possible asymmetries by re-examining the effect of tax systems on poverty and inequality in Ghana. We rely on the Nonlinear Autoregressive...

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Bibliographic Details
Published in:Cogent economics & finance 2023-12, Vol.11 (1), p.1-33
Main Authors: Adu, Frank, Alagidede, Imhotep Paul, Osei, Dennis Boahene, Asamoah, Michael Effah
Format: Article
Language:English
Subjects:
asymmetric
Asymmetry
Ghana
Inequality
Poverty
Resource mobilization
symmetric
tax system
Taxation
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Summary:Earlier studies have assumed the effect of tax systems on poverty and inequality to be symmetric by imposing linear specifications. In this study, we account for possible asymmetries by re-examining the effect of tax systems on poverty and inequality in Ghana. We rely on the Nonlinear Autoregressive Distributed Lag (NARDL) estimation techni que and time-series data from 1983 to 2016. The findings revealed that, while the nexus between tax systems and poverty is asymmetric, the reverse holds for the relationship between tax systems and inequality. Specifically, we establish that, while positive (negative) shocks in direct taxes raise (reduce) the level of poverty, the shocks in indirect and overall tax systems produce negative results. Moreover, the symmetric evidence is observed only for indirect taxes and inequality in the long-run, and the relationship is positive. We recommend for a poverty reduction strategy that is centered on tax reduction at all levels. Equally important is a policy that has a firm foundation in the indirect tax system to bridge the inequality in Ghana.
ISSN:2332-2039
2332-2039
DOI:10.1080/23322039.2023.2166211