Political stability and fiscal consolidation in sub‐Saharan African countries

Abstract

Fiscal policy decision‐making in sub‐Saharan African countries has not always been understood, and the existing literature has generally emphasised the role of macroeconomic factors to justify government fiscal performances. This study highlights the essential role of political stability in the fiscal consolidation decision‐making process in sub‐Saharan African countries. We perform a panel logit model for twenty‐seven (27) sub‐Saharan African countries for the period 2000–15. We show that government stability increases the likelihood of fiscal consolidation as measured by the improvement in the cyclically adjusted primary balance (CAPB). This finding shows that governments that face less risk of being overthrown and enjoy institutional support from the political arena are more prone to fiscal consolidation. This result is obtained by examining different aspects of political stability, including government cohesion, popular support, legislative strength, margin of majority and legislative fractionalisation. Moreover, disaggregating fiscal policy into spending and revenue‐based strategies allows us to show that spending‐based consolidation tends to be more significantly associated with government stability than revenue‐based consolidation. Our findings are supported by various robustness checks and contribute to the ongoing efforts in sub‐Saharan countries to enhance sound fiscal policy.

The Cyclical Behaviour of Fiscal Policy: Are Developing Countries Different, and Do Institutions Matter?

“…Hence, there might be other factors at play that may be responsible for observed shift, not necessarily the institutional improvement. In line with the literature, these factors may include public debt, terms of trade volatility, polarisation of preferences (Priewe, 2020;Yabré & Semedo, 2021;Jaillet & Pfister, 2022), or even levels of corruption (Bausch, 2019).…”

Essays on fiscal policy: empirical evidence from SSA countries

“…Following the paper by Giavazzi -Pagano (1990), the empirical literature on the response of real GDP and private demand to contractionary fiscal policy falls within two strands-expansionary austerity (non-Keynesian effects of fiscal policy) (Giavazzi -Pagano, 1990, 1996Alesina -Perotti, 1997;Alesina -Ardagna, 1998;Perotti, 1999;Ardagna, 2004;von Hagen -Strauch, 2001;van Aarle -Garretsen, 2003;Giudice et al, 2007;Alesina et al, 2015;Jordà -Taylor, 2016;Alesina et al, 2019;Afonso -Leal, 2020; and contractionary austerity (Hjelm, 2002b;van Aarle -Garretsen, 2003;Schclarek, 2007;Guajardo et al, 2014;Arizala et al, 2021;Yabré -Semedo, 2021).…”

“…In addition, this approach is simple and transparent in its application. However, regarding the discrepancies in unemployment data, several authors have suggested that for developing countries, the real GDP growth rate instead of the unemployment rate should be used (Brunila et al, 1999;Fatás -Mihov, 2003;Alberola -Sousa, 2017;Yabré -Semedo, 2021). We follow the same procedure to formulate the BFI.…”

“…The empirical validity surrounding fiscal adjustment is not yet fully settled. The first debt stems from the ambiguous effects of fiscal consolidations where one strand of literature supports the view of expansionary effects on GDP (Giavazzi -Pagano, 1990;1996;Perotti, 1999;Alesina et al, 2015;Alesina et al, 2019;Afonso -Leal, 2020) while the other strand of literature rejects the expansionary fiscal retrenchments (Hjelm, 2002;Schclarek, 2003;Yabré -Semedo, 2021;Arizala et al, 2021;. The second strand of literature in which a coherent understanding of fiscal consolidation does not exist is about the economic effects of fiscal adjustments over the business cycle of an economy.…”

“…This study focuses on SSA countries' fiscal policy, where there is a lack of empirical studies for policy guidance. The economies are predominantly characterized by dependence on foreign aid, sensitivity to external and domestic shocks, commodity trade shocks, political instability, weak policies and institutions, higher levels of external indebtedness, procyclical fiscal policy, and natural resource rent (Beddies et al, 2009;Lledo -Poplawski-Ribeiro, 2013;Yabré -Semedo, 2021). Due to the peculiar characteristics of the region, our study mainly focuses on the response of economic activity to the changes in cyclically adjusted primary balance (CAPB) in SSA economies.…”