Government spending shocks and economic growth: additional evidence from cyclical behavior of fiscal policy

Olaoye, Olumide Olusegun; Okorie, Ukafor Ukafor; Eluwole, Oluwatosin Odunayo; Fawwad, Mahmood Butt

doi:10.1108/jeas-01-2020-0003

Cited by 9 publications

(11 citation statements)

References 77 publications

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“…However, the results obtained in the statistical analysis is unaffected. This is because when the sample size is large, a violation of the normality assumption is unimportant (Olaoye et al, 2020b). In this respect, in line with the central limit theorem the t-statistics of a large sample size will asymptotically follow the appropriate distribution even in the absence of normality.…”

Section: Empirical Findings 41 Descriptive Statisticsmentioning

confidence: 98%

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Sub-Saharan Africa's rising public debt stock: before another debt relief!

Olaoye¹

2022

AJEMS

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PurposeIn light of the recent calls for another round of debt relief for African countries, by African finance ministers and governments, the aim of the study is twofold. First, the study examined the effect of public debt on macroeconomic performance. Two, the study also examined whether previous debt relief has impacted positively on sub-Saharan African economies.Design/methodology/approachThe study adopts the two-step system GMM that accounts for potential endogeneity and feedback effect in dynamic panel models. As robustness, the study performs the two-stage least square (2SLS) estimation method.FindingsThe study reveals that previous debt relief programmes only had a marginal effect on economic growth in the region. The study found that corruption impacts negatively on the effectiveness of debt relief to achieve the desired economic outcomes. The study also found that sub-Saharan African economies seem to have shifted away from traditional concessional sources of financing towards market-based lenders dominated by China.Originality/valueThe study adds to the growing evidence in the public debt literature by looking at the separate impact of domestic and foreign debts on macroeconomic indicators of economic growth, inflation, unemployment and exchange rate. The study also controlled for previous debt relief in light of the call for another round of debt relief.Graphical Abstract

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Section: Empirical Findings 41 Descriptive Statisticsmentioning

confidence: 98%

Section: Empirical Findingsmentioning

confidence: 99%

Sub-Saharan Africa's rising public debt stock: before another debt relief!

Olaoye¹

2022

AJEMS

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“…Similarly, we include institutional quality, because it is affirmed in the literature that institutional quality significantly affects government fiscal policies ( i.e. a high‐quality institutional framework ensures government revenue is efficiently utilised and managed) and can help to reduce the negative effects of unfavourable shocks on the economy (Olaoye et al, 2020b). Likewise, some authors (Calderón & Nguyen, 2016) argue that improvement in the quality of institutions may help to support the effectiveness of fiscal policy over time.…”

Section: Datamentioning

confidence: 99%

“…increase in oil revenue) adopted a highly procyclical fiscal policy (by spending more during an economic boom) and a contractionary fiscal policy stance (by reducing government spending during an economic downturn). As a result, the country entered into a deep recession that lasted for about five consecutive quarters, following the decline in the global price of crude oil in 2014 (Olaoye et al, 2020b). This situation, therefore, reinforces the difficulty of maintaining a balance between fiscal stimulation and fiscal consolidation.…”

Section: Empirical Analysismentioning

confidence: 99%

Sub‐Saharan Africa's rising public debt stock: Is there a cause for concern?

Olaoye¹,

Olomola

2022

South African J Economics

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The study investigated public debt sustainability in sub‐Saharan Africa (SSA) by testing the reaction of the primary balance to positive and negative shocks in public debts in a panel of 45 SSA countries. The study adopts the innovative nonlinear fiscal reaction function and the dynamic panel threshold model to account for the potential asymmetric phenomenon in the public debt series. In line with extant studies, the study found that public debts in SSA are weakly sustainable and there is a highly procyclical fiscal policy bias in SSA countries, particularly in resource‐rich countries, indicating that governments' fiscal policy responses are expansionary during economic upturns and contractionary during recessions, which may aggravate recessions and worsen debt situations across SSA. For robustness, the study compares the results with emerging and developed economies. The results indicate that in advanced economies, public debt is sustainable and that fiscal policy response is countercyclical. The research and policy implications are discussed.

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“…For instance, Gereziher and Nuru (2019) estimate the impulse response of fiscal policy for Ethiopia using SVAR; Nuru (2019) estimates the nonlinear effects of fiscal policy for South Africa using TVAR; and Mahrous (2016) examines the effect of government spending on economic growth for Kenya. Olaoye et al (2020) examined the asymmetric effect of fiscal policy on economic growth in Nigeria using a linear fiscal reaction function and nonlinear regression model. However, these studies estimate a wide range of fiscal multiplier predictions for the countries, and no definitive conclusions can be drawn for SSA countries.…”

Section: Introductionmentioning

confidence: 99%

The asymmetric effect of fiscal policy on private consumption and private investment over a business cycle: Evidence from Sub‐Saharan African countries

Woldu

2023

Regional Science Policy & Practice

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This study examines the response of private consumption and private investment to an exogenous shock of fiscal policy and estimates the size of fiscal multipliers during periods of economic slacks and positive output gap. Panel vector autoregressive (VAR) estimation technique is performed on a sample of 18 Sub‐Saharan African (SSA) countries for the period 2000–2018. The study finds that the output’s fiscal impact multiplier is larger during contractions than during expansion. Furthermore, in contractions, the fiscal multipliers are 0.06% for private consumption and 0.6% for private investment. Meanwhile, in expansions, they are −0.03 for private consumption and −0.04% for private investment. The findings of this study are consistent with the results of previous studies predicting Keynesian views. Thus, to earn sizable, persistent, and long‐lasting effects through fiscal policy, this study recommends that spending programs should account for countercyclical fiscal policy and consider consumption and investment decisions before implementation. Moreover, the fiscal spending interventions tend to target rule‐of‐thumb households and financially constrained firms.

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Government spending shocks and economic growth: additional evidence from cyclical behavior of fiscal policy

Cited by 9 publications

References 77 publications

Sub-Saharan Africa's rising public debt stock: before another debt relief!

Sub-Saharan Africa's rising public debt stock: before another debt relief!

Sub‐Saharan Africa's rising public debt stock: Is there a cause for concern?

The asymmetric effect of fiscal policy on private consumption and private investment over a business cycle: Evidence from Sub‐Saharan African countries

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