Feasibility of tax-benefit microsimulation in Ghana

The technical paper introduced in this article studies the feasibility of building a tax-benefit microsimulation model for Ghana. The main Ghanaian tax and benefit policies are reviewed, followed by a discussion of data requirements. We conclude that the Ghana Living Standards Survey, wave 6 (GLSS6), forms a fairly promising basis for tax-benefit microsimulation. Ghana has a need not only for modelling, but also building a more comprehensive tax and benefit system.

Ghana has been one of the rapidly growing economies in sub-Saharan Africa (SSA), with growth rate reaching 15 per cent in 2011.

© UN Photo/JC McIlwaine

The rapid growth has also been reflected in success in poverty reduction. The official headcount poverty rate has dropped from 52 per cent in 1991–92 to 29 per cent in 2005–6.

However, inequality has risen over the same period, as a result of which poverty reduction has not been as fast as it would have been without increased inequality.

In the paper ‘Feasibility of tax-benefit microsimulation in Ghana’, we evaluate the feasibility of building a tax-benefit microsimulation model for Ghana. The model would be built on the EUROMOD platform.

To assess the feasibility, one needs to review the tax and benefit policies of the country in question, discuss possible data sources and, most importantly, assess how well the dataset and the policies correspond: which policies can be simulated in a credible way and which policies need to be left out as there is not sufficient data for the simulation.

After reviewed the Ghanaian tax and benefit policies, we concluded that the latest wave of the Ghana Living Standards Survey (GLSS6) will be the best possible database for a microsimulation model.

We argued that the most important tax components, such as the income tax, the value-added tax and the most important excises should be subject to simulation.

This is an intoduction to the technical paper ‘Feasibility of tax-benefit microsimulation in Ghana’ by Kwabena Adu-Ababio, Robert Osei and Jukka Pirttilä published by UNU-WIDER on April 2016.