Fiscal Incidence in Ghana

Abstract

We use methods developed by the Commitment to Equity Institute to assess the effects of government taxation, social spending and indirect subsidies on poverty and inequality in Ghana. We also simulate several policy reforms to assess their distributional consequences. Results show that, although the country has some very progressive taxes and well-targeted expenditures, the extent of fiscal redistribution is small, but about what one would expect given Ghana’s income level and relatively low initial inequality. Results for poverty reduction are less encouraging: were it not for the in-kind benefits from health and education spending, the overall effect of government spending and taxation would actually increase poverty in Ghana. Eliminating energy subsidies and at the same time reallocating part of the savings to well-targeted transfer programs could lower the fiscal deficit while reducing inequality and protecting the poor.