Is there a Causal Effect Between the Climate Vulnerability Components and the Government Tax Revenue in Ghana? ARDL Approach

Abstract

According to the Country Climate and Development Report (CCDR), Ghana, being highly vulnerable to climate change, needs approximately $2 billion every year until 2050 to sustain its climate resilience initiatives, making tax revenue mobilization indispensable. The purpose of this study is to examine the causal relationship between Ghana’s tax revenue mobilization and the climate vulnerability subcomponents (exposure, sensitivity, adaptive capacity), and other control variables. Using the Autoregressive Distributed Lag (ARDL), Granger-causality methods and a time series dataset covering 1990–2020. Findings show that 1% increase in exposure, adaptive capacity and sensitivity climate vulnerabilities will decrease tax revenue mobilization by 7.9%, 5.8% and 1.4% respectively. Subsequent findings also reveal an increase in adaptive capacity will increase tax revenue mobilization by 5% in the short run giving future fluctuation in tax revenue mobilization due to shocks. In the long-run, adaptive capacity climate vulnerability of lag and of first difference, showing 1% increase will cause an increase in tax revenue mobilization by 6.5% and 5% respectively, while lag and first difference in sensitivity vulnerability leads to decrease tax revenue mobilization by 5% and 1.4% respectively. Hence, there is the need for Ghana to link exposure and adaptive capacity climate vulnerabilities in its tax revenue mobilization policies and strategies. Additionally, Ghana tax revenue policymakers need to reassess the ecosystem and sensitivity climate vulnerability strategies to curtail negative externalities on tax revenue buildup. The study would serve as a guide in the implementation of effective tax revenue accumulation policies considering climate adaptation measures.