Fiscal policy instruments have been on ascendency among Metropolitan, Municipal and District Assemblies (MMDAs) in Ghana since the promulgation of Ghana’s Provisional National Defence Council (PNDC) Local Government Law (PNDC Law 207), 1988 and the passage of the Local Governance Act of 2016, Act 936. In the light of this, the paper seeks to investigate whether the fiscal variables like the Internally Generated Funds (IGF) and IGF Expenditure responds to budgetary disequilibria in the Agona West Municipal Assembly (AWMA) using the Autoregressive Distributed Lag (ARDL) model, Bounds Testing, Empirical Trend Analysis, Unrestricted Error Correction Model (ECM) and Pairwise Granger causality test. The study used a time series monthly data from January 2015 to April 2019. From the estimate of the ARDL and Unrestricted ECM model, results of Cumulative Sum of Residuals (CUSUM) and Cumulative Sum of Squares Residuals (CUSUMSQ) falls within the critical bounds of 5%. This confirms the long run relationship between the fiscal variables and the speed of adjustment towards the long-run equilibrium which was found to be 79.084 percent. Intuitively, the estimated coefficient indicates that about 79.084 percent of this disequilibrium would take approximately 12months for the long-run equilibrium to be resuscitated in the case of short-run distortion. Hence the fiscal variable does not respond to budgetary disequilibria. However, the empirical trend analysis shows a budget deficit rate of 2.670 percent. Exegesis aside, the estimate of the pairwise granger causality test shows no unidirectional causal relationship between the IGF and IGF Expenditure.
Keywords: IGF Expenditure, IGF, ARDL Model, ECM, AWMA