Econometric Analysis of Fiscal Deficit Sustainability of Ghana

Abstract

The paper examined the sustainability of fiscal policy in Ghana over the period of 1980-2010, to determine whether or not the economy has achieved the feat as a criterion required for membership in proposed West African Monetary Zone (WAMZ). Using error correction method of analysis, the study revealed that the variables have long run relationship which indicated sustainability, although weak, which shows an indication that the country might not qualify for membership in WAMZ. Also, the study reveals that only 29 percent of disequilibrium between government revenue and expenditure generated in the economy was restored yearly following shocks to the economy. The study therefore recommends that government should improve on her tax revenue generation and other source of income and ensure records of surplus budgeting.

Keywords: sustainability, criterion, economy, fiscal deficit, error correction

JEL H63 H10 F41 H62 C13