Fiscal Decentralization and Autonomy of Subnational Entities in Ghana

Abstract

This thesis examines the implementation of fiscal decentralization in Ghana, originally known as the Gold Coast in West Africa. It focuses on the Government of Ghana’s policies regarding subnational entities especially those related to own-source revenues, property taxes and government fragmentation. Ghana began the implementation of fiscal decentralization during the colonial era, but commenced more rigorous reforms only after 1988, with the enactment of laws to implement a Constitutional provision to allocate 5 percent of tax revenues to subnational governments and to fragment growing subnational units to smaller ones, in order to aid service delivery. The effectiveness of these polices has not yet been assessed by the Government of Ghana. This thesis examines these policies by posing three questions: First, “how effective is fiscal decentralization in supporting subnational autonomy in Ghana?” Second, “To what extent do revenue and expenditure assignments as well as intergovernmental transfers impact on regional gross domestic product in Ghana?” Third, “to what extent do subnational fragmentation and intergovernmental transfers impact on own-source revenue and more specifically property tax revenue in assemblies in Ghana?” The thesis concludes that Ghana has been more successful with political and administrative decentralization relative to fiscal decentralization. Of the pillars of fiscal decentralization, the intergovernmental transfers pillar is the most effective, although its implementation is bedeviled with delays in the transfer of funds. Revenue and expenditure autonomy are limited in Ghana, partly because of financial capacity constraints at the local level and over the financing of their capital budgets. It also concludes that subnational debt is not a challenge in Ghana. However, fragmentation at the regional and assembly levels has an overall negative impact on regional GDP, own-source revenue generally and property taxes more specifically, with some nuance at the level of metropolitan assemblies. Finally, this study confirms that intergovernmental transfers have an aggregate negative impact on own-sourced revenue, but no impact on the property taxes. I therefore recommend a detailed analysis of the institutional capacity of assemblies to generate own source revenue to be carried out before assemblies are fragmented. In addition, the central government needs to progressively increase the performance-based proportion of its intergovernmental transfers and provide technical assistance to assemblies that require support to enhance their revenue collection.