Intergovernmental Transfers and Local Revenues Again—A Relook at the Ghanaian Local Government Case

Abstract

This paper revisits options for strengthening local governance by increasing own revenues in local government jurisdictions. Using stochastic frontier and recursive structural equation methods, the paper estimates the effects of central government transfers and tax effort on own revenues in the Ghanaian local government system. Results show that contrary to some recent findings that transfers reduce own revenues for local jurisdictions in Ghana, increasing transfers to local jurisdictions increases (rather than reduces) own revenues in Ghana. Further, local government performance in public service provision was found to be critical for increasing own revenues. Making the Ghanaian local government system more sustainable thus requires increasing central government transfers and providing technical support to strengthen the relationship between available public services and own revenues.