Exchange rate volatility and tax revenue: Evidence from Ghana

Figures & data

Figure 1. Plot of Major Components of Tax Revenue (1984–2014).

Figure 2. Trend of Tax to GDP and Exchange Rate Volatility (1984–2014).

Table 1. Bounds test results for cointegration

Critical Value Bound of the F-statistic: intercept and no trend
K	90% Level		95% Level		99% Level
	I(0)	I(1)	I(0)	I(1)	I(0)	I(1)
7	1.92	2.89	2.17	3.21	2.73	3.9

F-Statistics: F_LTR(LTR|LINF,LGPC,LIND,LAID,LEXV, LEXVOPN,LOPN) = 5.3784**

Source: Authors’ Computation

Table 2. Long-Run and Short-Run Estimates

	ARDL
Variable	Short Run	Long-run
Inflation	0.0478*	0.0335
	(0.0250)	(0.0445)
Industrial sector	0.4956***	0.8480***
	(0.0946)	(0.1559)
Foreign aid	0.2430***	0.2265***
	(0.0491)	(0.0571)
GDP per capita	0.6837*	0.6227***
	(0.3582)	(0.1458)
Trade openness	–0.3734**	–0.3078**
	(0.1575)	(0.1104)
Exchange rate volatility	–0.5433***	–0.8546***
	(0.1206)	(0.2649)
Exchange rate volatility*Trade openness	0.0077***	0.0132***
	(0.0014)	(0.0033)
CONS	–	4.0153***
	–	(1.1242)
ECT(−1)	–0.9377***
	(0.1170)
$R^2$	0.9118
Adjusted Squared $R^2$	0.8580
DW Statistic	1.9605

Note: LTR is the Dependent Variable. ***, ** and * denotes 1%, 5% and 10% level of significance respectively.

Source: Authors’ Computation

Table 3. Diagnostic Tests

Test	F/Chi Version	P-Value
Serial Correlation	1.8750	0.1855
Functional Form	1.0735	0.3147
Normality	0.3146	0.8544
Heteroscedasticity	0.6768	0.7427
CUSUM	–	Stable
CUSUMSQ	–	Stable

Source: Authors’ Computation

Table

	TR	INF	IND	AID	GPC	OPN	EXV	EXV*OPN
Mean	14.375	22.177	23.325	8.5919	777.07	69.426	−0.0993	−4.8671
Median	13.877	18.031	26.558	9.5685	721.21	71.594	−0.1286	−7.2928
Max	21.752	59.461	28.938	16.338	1251.4	116.04	0.6766	67.446
Min	9.6980	8.7268	11.153	2.8631	551.63	18.814	−0.6229	−50.209
Std.Dev.	2.8331	12.529	5.3438	3.5785	198.40	25.308	0.3097	24.043
Skew	0.9502	1.1320	−0.5079	0.1557	1.0966	−0.1477	0.3961	0.6616
Kurtosis	3.6064	3.8368	1.8252	2.0498	3.2302	2.1498	2.9153	4.3203
J. Bera	5.1400	7.5253	3.1156	1.2913	6.2815	1.0463	0.8202	4.5136
Prob	0.0765	0.0232	0.2105	0.5243	0.0432	0.5926	0.6635	0.1046
Sum	445.63	687.50	723.08	266.34	24,089	2152.2	−3.0811	−150.88
Ss Dev.	240.80	4709.7	856.71	384.17	1,180,972	19,215.8	2.8790	17,342
Obs	31	31	31	31	31	31	31	31

Note: SS Dev. represents Sum of Squared Deviation, Std Dev. represents Standard Deviation,

J. Bera represents Jarque Bera, Prob represents Probability, Skew represents Skewness

while Obs stands for Observation.

Appendix B: ARCH Test Result on Real Effective Exchange Rate

SERIES	ARCH	F-Statistics	R-Squared	P-Values	RESID^2
RER (−1)	0. 9166***	4872.17	359.51	0.0000
ARCH [1]		0.0556	0.0559	0.8137

Note: *** implies 1% level of significance while ARCH [1] is the ARCH LM test.

Appendix C. GARCH (1, 1) Results for Volatility in the Exchange Rate

Variable	Coefficient	Std. Error	Z-Statistic	Prob
CONS	0.0001	2.17E-05	5.1166	0.0000
ARCH (α)	0.4597***	0.0727	6.3233	0.0000
GARCH (β)	0.5869***	0.0417	14.057	0.0000
(α + β)	1.0466

Note: *** implies 1% level of significance.

Appendix D. Results of Unit Root Test with Trend and constant: ADF Test

Level			First Difference
Variables	ADF-Statistics	Lag	Variables	ADF-Statistics	Lag	I(0, 1)
LTR	2.4886[0.1281]	1	$\mathrm{\Delta }$LTR	7.3034[0.0000]***	0	I(1)
LOPN	−2.0136[0.2797]	1	$\mathrm{\Delta }$LOPN	−5.0645[0.0003]***	1	I(1)
LINF	−3.4767[0.0159]**	1	$\mathrm{\Delta }$LINF	4.5805[0.0012]***	−0	I(0)
LIND	−3.0981[0.0375]**	1	$\mathrm{\Delta }$LIND	−6.3926[0.0000]***	0	I(0)
LAID	−1.08972[0.7066]	1	$\mathrm{\Delta }$LAID	−5..3079[0.0002]***	0	I(1)
LGPC	3.5970[1.0000]	1	$\mathrm{\Delta }$LGPC	−3.0170[0.0450]***	1	I(1)
EXV	−4.3886[0.0016]***	0	$\mathrm{\Delta }$EXV	−7.3652[0.0000]***	1	I(0)
EXV*OPN	−5.0013[0.0003]***	1	EXVOPN	−8.3097[0.0000]***	0	I(0)

APPENDIX E. Results of Unit Root Test with constant and trend: PP Test

Levels			First Difference
Variables	PP-Statistics	BW	Variables	PP-Statistics	BW	I(0,1)
LTR	−3.1706[0.1093]	2	$\mathrm{\Delta }$LTR	−7.4866[0.0000]***	4	I(1)
LOPN	−1.3894[0.8434]	3	$\mathrm{\Delta }$LOPN	−3.5787[0.0495]***	3	I(1)
LINF	4.0251[0.0186]**	−11	$\mathrm{\Delta }$LINF	15.7639[0.0001]***	28	I(0)
LIND	−2.8745[0.1842]	1	$\mathrm{\Delta }$LIND	−6.1668[0.0001]***	2	I(1)
LAID	−1.7776[0.6903]	5	$\mathrm{\Delta }$LAID	−6.2502[0.0001]***	5	I(1)
LGPC	0.4542[0.9986]	2	$\mathrm{\Delta }$LGPC	−3.7210[0.0368]***	2	I(1)
LEXV	−4.1935[0.0127]**	7	$\mathrm{\Delta }L$EXV	−19.858[0.0000]***	28	I(0)
LEXV*OPN	−4.8953[0.0024]***	5	$\mathrm{\Delta }L$EXVOPN -	24.3537[0.0000]***	28	I(0)

Note: ***, **, * indicates the rejection of the null hypothesis of non- stationary at 1%, 5%, 10% level of significance respectively, Δ denotes the first difference, BW is the Band Width and I(0) is the lag order of integration. The values in parenthesis are the P-values.

Appendix F. Test for Joint Significance on Trade Openness—Exchange Rate Volatility Interaction (Short Run)

F-statistic

4.4600

Prob. F(2,23)

0. 0230**

Note: ** implies 5% level of significance.

Appendix G. Test for Joint Significance on Exchange Rate Volatility—Trade Openness Interaction (Long Run)

F-statistic

5.8100

Prob. F(2,23)

0. 0091***

Note: *** implies 1% level of significance.

Appendix I. Results of Pair-Wise Granger Causality Tests

Null Hypothesis	F-Statistics	Probability
EXV does not Granger Cause LTR	4.0206	0.0312**
LTR does not Granger Cause EXV	1.1196	0.3429
LAID does not Granger Cause LTR	0.2174	0.8061
LTR does not Granger Cause LAID	3.3475	0.0522*
LIND does not Granger Cause LTR	3.0231	0.0675*
LTR does not Granger Cause LIND	1.0738	0.3575
LINF does not Granger Cause LTR	0.6224	0.5451
LTR does not Granger Cause LINF	1.4488	0.2547

Note: ***, **, and * denote significance level at 1%, 5% and 10% respectively

Source: Authors’ computation