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1. Introduction
The aim of tax reforms is tended towards revenue sufficiency, equity, simplicity and economic efficiency. The need for tax reform arises from the deficiency of the existing tax system in achieving these objectives (see McMahon and Berrios, 1991). Tax reforms therefore have turned from a desired or preferred task to being a necessary one. According to Osoro (1993), tax reform is a change in the status quo and that tax reforms has been one of the major preoccupations of most developing countries in the 1980s. The success of tax reforms in raising the revenue mobilizing capacity of the tax system can be evaluated by looking at the buoyancy and elasticity of the tax system. Buoyancy measures the automatic effects of discretionary changes in the tax system to changes in income whilst, elasticity is the built in responsiveness of tax revenue to movements in national income abstracting from the effects of discretionary changes in tax system (see Mansfield, 1972).
Ghana commenced a reform of its tax system since the early 1980s. One of the key objectives of the tax modernization programme was to ensure that the revenue structure was flexible enough to guarantee increased revenue without resorting to discretionary tax policies or inflationary financing. Since 1983, the tax system of Ghana has undertaken significant tax reforms, aimed at improving revenue generation and maximizing the efficiency of collection. The first major tax reforms in Ghana was in 1985 and since then series of other tax initiatives and reforms have taken place all in a bid to arrest the fiscal imbalance that continue to be a bane for the country.
Many empirical studies have been undertaken on tax reforms and revenue mobilization in sub-Saharan African countries (see Osoro, 1993; Muriithi and Moyi, 2003; Ogbonna and Ebimobowei, 2011; Okech and Mburu, 2011; Kargbo and Egwaikhide, 2012; Kanyi, 2014 among others). However, among the handful of studies on tax reforms and revenue mobilization in Ghana, the study by Twerefou et al. (2010) attempts to estimate tax buoyancy and elasticity of various tax systems using the dummy variable approach. The drawback of the study by Twerefou et al. (2010) has to do with their inability to eliminate discretionary tax changes from the time series tax data used for...