Impact of the World Economic Recession on Tax Administration in Ghana

Topics: Recession, Macroeconomics, Unemployment Pages: 9 (3427 words) Published: February 28, 2013
2.1 Theoretical Review
The use of domestic resources for development purposes is becoming more and more important as access to foreign resources becomes increasingly difficult. It is the current global financial crisis and the subsequent recession that are generally expected to make access to foreign resources more difficult. Ironically, however, these are possibilities of the global recession affecting the mobilization of domestic resources. “Domestic resource mobilization refers to the generation of savings from domestic resources and their allocation to socially productive investment”. (Culpeper, 2008). Such resource mobilization can come from both the public sector and private sector. The public sector does this through taxation and other forms of public revenue generation. The private sector mobilizes resources through household and business savings, working through financial intermediaries to convert these into productive assets. The global recession will affect the capacity of the public sector to mobilize tax revenues if it affects the incomes of residents or has an impact on trade with outsiders which will affect trade taxes. It is observed that many African countries have pursued a number of reforms While African economies were initially thought to be immune to the worldwide financial and economic downturn, the crisis is now ripping them apart as more jobs dry up, factories shut down, inflation soars and the cost of living goes up. Africa is turning out to be one of the worst-affected regions in the world since the global economy began to fall apart in 2008. (Obeng, 2009) Many professionals and experts around the world believe that economic recession can only be confirmed if GDP (Gross Domestic Product) growth is negative for a period of two or more consecutive quarters. The roots of a recession and its true starting point activity rest in the several quarters of positive but slowing growth before the recession cycle really begins. Often in a mild recession the first quarter of negative growth is followed by slight positive growth then negative growth returns and the recession trend continues. (, 2009)

What is Economic Recession
In economics, a recession is a business cycle contraction, a general slowdown in economic activity over a period of time. During recessions, many macroeconomic indicators vary in a similar way. Recessions are generally believed to be caused by a widespread drop in spending. Governments usually respond to recessions by adopting expansionary macroeconomic policies such as increasing money supply, increasing government spending and decreasing taxation. Most mainstream economists believe that recessions are caused by inadequate aggregate demand in the economy and favor the use of expansionary macroeconomic policy during recessions. Monetarists would favor the use of expansionary monetary policy while Keynesian economists may advocate increased government spending to spark economic growth. Supply- side economists may suggest tax cuts to promote business capital investment. Laissez- faire minded economists may simply recommend that the government not interfere with natural market forces. (Shukla, 2009). According to National Bureau of Economic Research (NBER, 2009) recession is defined as a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real gross domestic product (GDP), real income, employment, industrial production and wholesale- retail sales. It can also be associated with falling prices known as deflation due to lack of demand of products. Economic recessions are often portrayed as short- term events. However, as a substantial body of economic literature shows the consequences of high unemployment, falling incomes and reduced economic activity can have lasting consequences. Thus, economic recession can lead to ‘scarring’- that is, long lasting damage to individuals’ economic...
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