Redistributive politics: the case of fiscal transfers in Ghana

Purpose: The purpose of this paper is to examine the effects of political influences on fiscal transfers from the central government to district assemblies in Ghana. Design/methodology/approach: It adopted a redistributive politics model and estimated the two-step system generalized method of moment using electoral outcomes, and transfers data for 167 districts which were classified into swing and aligned, from 1994 to 2014. Findings: The findings reveal that Gh₵6.28m on average was transferred to each district annually, which tend to increase by 8.4 percent in election years. Further, the swing districts received 5.2 percent more than the aligned districts. Practical implications: The sharing mechanism is significantly influenced by political considerations as there exists a political budget cycle and a general dominance of swing effects. Social implications: The fiscal transfer system disregards the social principles of fairness and efficiency. Therefore, a wider consultative process in reviewing the formula is proposed; and this should be done in intervals of five years to minimize the indiscriminate adjustments of the sharing formula. Originality/value: The paper empirically examines the political economy dynamics of intergovernmental fiscal transfers in a decentralized unitary system.