Socioeconomic structure and internal revenue generation in Ghana

Abstract

After three decades of decentralized governance, weak fiscal capacities continue to characterize and undermine local authority of districts in Ghana and across the developing south. While significant literature has been devoted to understanding the internal fiscal problems of local authorities, they have been limited to administrative and capacity constraints that hamper efficient and effective revenue collection. However, the inherent socioeconomic makeup of local jurisdictional bodies has largely been under-explored despite evidence that it affects local government revenue. In this study, we test six hypotheses corresponding to six socioeconomic variables against internal revenue proxied by Internally Generated Fund (IGF) per capita using a Robust Linear Model (RLM) and later extended to a Spatial Lag Model (SLM) to control for spatial clustering in residuals. Our findings produce evidence to reject the null hypothesis in four cases. Specifically, the results show that higher proportions of urban population relative to rural as well as higher proportions of tertiary/vocational degree holders relative to non-tertiary degree holders are associated with higher IGF per capita. Conversely, higher unemployment rates and higher shares of agricultural employment relative to non-agricultural are associated with low IGF per capita. Our study is relevant for the contextualization of local government fiscal health in terms of their socioeconomics, for drawing linkages on the impact of macro policies on local government revenue and for informing on the viability of districts during the process of jurisdictional proliferation.