Is Value-added Tax a Moneymaking-Machine for Developing Economies? Evidence from Ghana


  • Francis Kwaw Andoh
  • Nehemiah E. Osoro
  • Eliab Luvanda


Value-added tax (VAT) became a tax of choice recommended by the Breton Wood Institutions to boost tax revenue shares in developing countries. However, after several decades of VAT implementation globally, empirical evidence on its revenue effects is still inconclusive. The key question in this paper is: has the adoption of value-added tax (VAT) really made Ghana’s tax revenue mobilisation better off? This paper employs both the Fully Modified OLS and Autoregressive Distributed Lag (ARDL) approaches to test the moneymaking hypothesis for Ghana’s VAT.  On the whole, the study fails to uphold the view that the VAT is a moneymachine for Ghana. This implies that its adoption has not really brought about any dramatic improvement in aggregate tax shares. The study therefore recommends a reduction in the over concentration on VAT.  An appropriate balance of tax-mix is therefore recommended.

Author Biographies

Francis Kwaw Andoh

School of Economics, University of Cape Coast, Ghana

Nehemiah E. Osoro

Dept. of Economics,University of Dar es Salaam, Tanzania,

Eliab Luvanda

Dept. of Economics,University of Dar es Salaam, Tanzania


Aaron, H., 1981. The Value-Added Tax: Lessons from Europe. Brookings Institution (September).

Adam, C.S., Bevan, D.L. & Chambas, G., 2001. Exchange rate regimes and revenue performance in Sub-Saharan Africa. Journal of Development Economics,, 64(1), pp.173– 213.

Agbeyegbe, T., Stotsky, J.G. & WoldeMariam, A., 2004. Trade Liberalization, Exchange Rate Changes, and Tax Revenue in Sub-Saharan Africa. IMF Working Paper No. WP/04/178.

Alm, J. & El-Ganainy, A., 2013. Value-added taxation and consumption. International Tax and Public Finance, 20(1), pp.105–128.

Altig, D. et al., 2001. Simulating Fundamental Tax Reform in the United States. American Economic Review, 91(3), pp.574–595.

Andoh, F.K., 2017. Taxable Capacity and Efforts of Ghana’s Value Added Tax. African Review of Economics and Finance, 9(2), pp.255–284.

Andoh, F.K., Osoro, N. & Luvanda, E., 2017. Growth Dynamics of Value Added Tax in Developing Countries: The Case of Ghana. Paper presented at 73rd Annual Congress of International Institute of Public Finance, 18-20th August, 2017,Tokyo Japan. Available at:

Auerbach, A.J., 2010. California’s Future Tax System. California Journal of Politics and Policy, 2(3).

Auerbach, A.J., 1996. Tax Reform, Capital Allocation, Efficiency and Growth. In H. Aaron & W. Gale, eds. Economic Effects of Fundamental Tax Reform. pp. 29–81.

Belinga, V. et al., 2014. Tax Buoyancy in OECD Countries, Wahington DC.

Bird, R.M. & Gendron, P., 2006. Is VAT the Best Way to Impose a General Consumption Tax in Developing Countries? Andrew Young School of Policy Studies Working paper No. 06-17.

Bird, R.M. & Gendron, P.-P., 2007. The VAT in Developing and Transitional Countries, Cambridge: Cambridge University Press.

Bleaney, Y.M., Gemmel, N. & Greenaway, D., 1995. Tax Revenue Instability, with Particular Reference to Sub-Saharan Africa. The Journal of Development Studies, 31, pp.883–902.

Buettner, T., Hertz, R. & Nam, C.W., 2006. VAT Introduction and WTO Membership: The Experience in Developing and Transition Countries. mimeo, Ifo Institute.

Crowe Horwarth International, 2016. Africa VAT/GST Guide 2016, Available at:

Desai, M.A. & Hines Jr, J.R., 2005. Value-Added Taxes and International Trade: The Evidence, Available at: Fall2005/hines.pdf ( Accessed on 20/o8/2016).

Dudine, P. & Jalles, J.T., 2017. How Buoyant is the Tax System? New Evidence from a Large Heterogeneous Panel. IMF Working Paper WP/17/4.

Ebeke, C. & Ehrhart, H., 2012. Tax Revenue Instability in Sub-Saharan Africa: Consequences and Remedies. Journal of African Economies, 21(1), p.1–27.

Emran, M.S. & Stiglitz, J.E., 2005. On selective indirect tax reform in developing countries. Journal of Public Economics, 89.(4), p.599–623.

Gale, W.G. & Harris, B.H., 2010. A Value-Added Tax for the United States: Part of the Solution. Brookings Institution and the Tax Policy Center, (July).

Hubbard, R.G. & Gentry, W.M., 1997. Distributional Implications of Introducing a Broad-Based Consumption Tax. In J. M. Poterba, ed. Tax Policy and the Economy. Cambridge: MIT Press.

IMF, 1991. Value-Added Tax: Administrative and Policy Issues A. Tait, ed. Occasional Paper,

International Tax Dialogue (ITD), 2005. The Value Added Tax: Experiences and Issues. Prepared for the ITD Conference on the VAT, Rome, March 15-16, 2005, p.11.

Keen, M. & Lockwood, B., 2006. Is the VAT a Money Machine? National Tax Journal, 59(4), pp.905–928.

Keen, M. & Lockwood, B., 2010. The value added tax: Its causes and consequences. Journal of Development Economics, 92, pp.138–151.

Khattry, B. & Rao, M.J., 2002. Fiscal Faux Pas?: An Analysis of the Revenue Implications of Trade Liberalization. World Development, 30(8), pp.1431–1444.

Le, T.M.T.M., 2003. Value Added Taxation: Mechanism, Design, and Policy Issues, Available at: added taxation/Value Ad.(accessed : 15/05/2015).

McLure, C., 1983. Value Added Tax: Has the time Come? In C. E. Walker & M. A. Bloomfield, eds. New Directions in Federal Tax Policy for the 1980s. Ballinger: Cambridge Mass, pp. 185–213.

Nellor, D., 1987. The Effect of the Value–Added Tax on the Tax Ratio. IMF Working Paper No. WP/87/47.

Osoro, N., 1993. Revenue Productivity Implications of Tax Reform in Tanzania, Oxford. Available at: 20.pdf?sequence=1.

Phillips, P.C.B. & Hansen, B.E., 1990. Statistical inference in instrumental variables regression with I(1) processes. Review of Economics Studies, 57(99–125).

Piggott, J. & Whalley, J., 2001. VAT Base Broadening, Self Supply, and the Informal Sector. American Economic Review, 91, pp.1084–94.

Riswold, S., 2004. VAT in Sub-Saharan Africa – A Critique of IMF VAT Policy. VAT Monitor, (March/April), pp.98–110.

Sobel, R.S. & Holcombe, R.G., 1996. Measuring the Growth and Variability of Tax Bases over the Business Cycle. National Tax Journal, Vol 49(4), pp.535–52.

Stockfisch, J.A., 1985. Value-Added Taxes and the Size of Government: Some Evidence. National Tax Journal, 38, pp.547–552.

Stotsky, J.G., WoldeMariam, A. & IMF, 1997. Tax Effort In Sub-Saharan Africa, Washington D.C.

Wang, Q. & Wu, N., 2012. Long-run covariance and its applications in cointegration regression.

The Stata Journal, 12(3), pp.515–542.

Wolswijk, G., 2009. The Short- and Long-Run Tax Revenue Response to Changes in Tax Bases. Economics Bulletin, 29(3), pp.1960–1970.

World Bank, 1991. Lessons on Tax Reform, Wahington DC: World Bank Publications.