The government revenue and expenditure nexus: the sustainability of the implementation of the single spine salary structure in Ghana

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July, 2015
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The study examines the causal linkage and long run relationship between government revenue and expenditures of government of Ghana over a times series spanning the period 2000-2014. We employed several econometric approaches including Engle-Granger two step method, Johansen cointegration vector error correction models and ordinary least squares regression with breakpoints based on Bai-Peron techniques to carry out the analysis. We test for unit root using augmented Dickey-Fuller and Philips-Perron methods to assess the series properties as well as checking for Ganger pairwise causality of the data variables. Our results of the ADF and PP unit root tests suggests that the time-series are not stationary at levels but stationary at the first di erencing. The findings from Granger pairwise causality test suggests bidirectional causation from revenue to expenditure in the long run supporting the synchronization hypothesis which is in dissenting view with earlier researchers. Similarly, the result of the Engle-Granger cointegration test indicates that a significant long term equilibrium relationship exist between the government revenue and expenditure in excellent agreement with Johansen multivariate analysis. Finally, the manually imposed structural breakpoints on the system to represent the pre- and postimplementation of the single spine salary structure was found to be consistent with the case when the manual imposition was relaxed for the system to detect the breakponts itself against the government fiscal profile in the spanned period under study. The results demonstrate that the long-term sustainability of the single spine salary structure would be in looming doubt if government do not take pragmatic steps to improve its revenue generation assiduously.
A Thesis submitted to the School of Graduate Studiesin Partial Fulfillment of the Requirements for the Award of Masters in Business Administration(Finance Option) ,