The redistributive and welfare impact of fiscal policies in Ghana: new evidence from CEQ methodology

Abstract

This study presents evidence on the effect of fiscal policies on poverty and inequality in Ghana for the 2017 fiscal year based on the Commitment to Equity (CEQ) assessment framework. Also, the CEQ framework was used to simulate the short-term distributional consequences (‘morning-after’ effects) of Ghana’s Free Senior High School (SHS) Policy and utility subsidies during the COVID-19 pandemic. We find that government spending and taxation in Ghana lowered inequality (Gini coefficient) by 5.94 percentage points. We also find a reduction in poverty rates, but this was mainly driven by in-kind benefits associated with public spending on health and more so education, without which poverty rate would have been higher. In its blanket form, the ‘morning-after’ effects of the Free SHS Policy was a marginal reduction in both inequality and poverty. We find further that in contrast to the effect of the blanket subsidy on water, the subsidies on electricity which had some elements of targeting reduced both poverty and inequality, but marginally. The findings underscore the need for more targeted subsidy and spending programmes to enhance their short-term poverty reduction and redistributive impacts.

Keywords

• Fiscal policy
• social spending
• taxes
• poverty
• inequality
• Ghana