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Journal of Statistics and Management Systems

(Since 1998)
Open Access ·Peer-reviewed·ISSN (Online): 2169-0014·ISSN (Print): 0972-0510

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Monthly Journal: Publishes peer-reviewed aticles on theoretical and applied statistics and management systems, expoloring industrial statistics, actuarial and decision sciences.

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Journal of Statistics and Management Systems
Open Access Research Article

Solvency constraint implications for tax liability targeting of banks in Ghana

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pp. 205–234Vol. 28Issue 1January 2025DOI: 10.47974/JSMS-1400XML
Received:
12 Mar 2024
Published Online:
15 Jan 2025
Article type:
Research Article
Language:
EN
Article no.:
JSMS-1400
Pages:
205–234

Abstract

This paper examines the implications of solvency constraints on the tax liability targeting in the Ghanaian banking sector. The analyses are based on 15-year annual data spanning 2008 to 2022 interpolated into monthly data frequency using the Denton procedure. The Dynamic OLS (DOLS) estimator, residual-based stationarity test, delay, and half-life techniques were employed in the estimations. The solvency constraint scenario exhibits a cointegration relationship with the tax liability target. The study finds evidence of a high speed of adjustment or convergence to tax liability targets in response to solvency constraints, with a high degree of persistence across the various solvency constraint proxies. The solvency constraint has deleterious tax revenue implications for the government and risk-adjusted tax savings for banks in Ghana. It is recommended that the government reorients its general policy to ensure stability in the Ghanaian banking sector to achieve favourable tax revenue from the sector, as uncertainties may trigger a deleterious tax-targeting scheme. Investors and financial analysts could use tax liability trends as a baseline to identify stressing scenarios, including solvency constraints.

Keywords

Tax liability targetingHP indexWW indexZscoreSolvency constraintDelayHalf-lifeSpeed of adjustmentBanksGhana

Subject Classifications

91B6491G8097M30

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