The poverty and inequality nexus in Ghana: a decomposition analysis of household expenditure components

The study examined the linkages between inequality in household expenditure components and total inequality and poverty in Ghana. Using micro data from the sixth round of the Ghana Living Standards Survey conducted in 2012/2013, marginal effects and elasticities were computed for both within-and between-component analysis. The results suggest that, in general, reducing within-component inequality significantly reduces overall poverty and inequality in Ghana, compared to between-component inequality. Specifically, inequality in education and health expenditure components were the largest contributors to overall poverty and inequality. The findings imply that policies directed towards reducing within-component inequality will be more effective than those directed towards between-component inequality. Specifically, the findings of the study corroborates with tax policies (such as Value Added Tax and National Health Insurance Levy in the case of Ghana) that provide exemptions for educational, health and agricultural inputs. This will lead to reduction in overall poverty and inequality by reducing inequality within these expenditure components. The results were robust to the choice of poverty line and consistent for both rural and urban locations.