Cyclical drivers of fiscal policy in sub-Saharan Africa: New insights from the time-varying heterogeneity approach

Kassouri Y., ALTINTAŞ H.

Economic Analysis and Policy, cilt.70, ss.51-67, 2021 (SSCI) identifier identifier

  • Yayın Türü: Makale / Tam Makale
  • Cilt numarası: 70
  • Basım Tarihi: 2021
  • Doi Numarası: 10.1016/j.eap.2021.01.019
  • Dergi Adı: Economic Analysis and Policy
  • Derginin Tarandığı İndeksler: Social Sciences Citation Index (SSCI), Scopus, IBZ Online, Periodicals Index Online, EconLit
  • Sayfa Sayıları: ss.51-67
  • Anahtar Kelimeler: Fiscal policy, Terms of trade, Cyclicality, Interactive fixed effects, Sub-Saharan Africa, FLEXIBLE EXCHANGE-RATES, BUSINESS CYCLES, TRADE SHOCKS, TERMS, FLUCTUATIONS, FUNDS
  • Erciyes Üniversitesi Adresli: Evet

Özet

© 2021 Economic Society of Australia, QueenslandWe extend the topical literature on the cyclical behavior of fiscal policy in developing countries subject to terms of trade cycles by applying the interactive fixed effects model that allow for unobserved time-varying heterogeneity in the impact of fundamentals. Based on a sample of 20 sub-Saharan African (SSA) countries from 1985 to 2017, our results support existing evidence about developing countries that fiscal policy is pro-cyclical in SSA countries. Whereas this pro-cyclicality is valid for government spending and fiscal balance, government revenue is slightly counter-cyclical. We also find that the pro-cyclicality of government expenditure and fiscal balance escalates during episodes of terms of trade booms. Our results make a strong case for the support of the pivotal role of Sovereign Wealth Funds, access to international financial markets, and flexible exchange rate regimes in reversing the pro-cyclical behavior of fiscal policy.