The Dynamics between Government Capital Expenditure and Revenue in Ghana: A Vector Error Correction Model Approach

Abstract: Ghana is currently faced with increasing total government expenditure that outweighs government revenue. As a result, there is low government financial liquidity, high budget deficit, and high government debt. This paper therefore analyzes the dynamics and long run relationship between government revenue and government capital expenditure in Ghana. A VECM approach is used. The results indicate that government of Ghana spends less on capital expenditure and more on recurrent expenditure as government revenue increases. The paper therefore recommends that government should increase capital expenditure for future economic growth, and reduce recurrent government expenditure to prevent further increases in government debt and budget deficit