The Impact of Fiscal Consolidations on Growth in Sub-Saharan Africa

33 Pages Posted: 18 Jan 2018

See all articles by Francisco Arizala

Francisco Arizala

International Monetary Fund (IMF)

Jesus Gonzalez-Garcia

International Monetary Fund (IMF)

Charalambos G. Tsangarides

International Monetary Fund (IMF)

Mustafa Yenice

International Monetary Fund (IMF)

Date Written: December 2017

Abstract

This paper examines the output effects of changes in public expenditure and revenue in sub-Saharan African countries during 1990-2016. Fiscal multipliers in sub-Saharan Africa are somewhat smaller than those in advanced and emerging economies. The effect of changes in fiscal policy on output depends on the composition: cutting public investment has a larger effect on output than cutting public consumption or raising revenue. Episodes of fiscal consolidation have short- and medium-term output effects, but here, too, composition matters: fiscal consolidations based on reducing public investment have the largest effect on output, while fiscal consolidations based on revenue mobilization are less harmful than those based on public investment cuts. These findings suggest that the negative impact on growth can be mitigated through the design of fiscal adjustment and the accompanying policy environment.

Keywords: Africa, Africa, Growth, fiscal consolidations, fiscal multipliers, local projections, General

JEL Classification: O55, E32, E62, H50

Suggested Citation

Arizala, Francisco and Gonzalez-Garcia, Jesus and Tsangarides, Charalambos G. and Yenice, Mustafa, The Impact of Fiscal Consolidations on Growth in Sub-Saharan Africa (December 2017). IMF Working Paper No. 17/281. Available at SSRN: https://ssrn.com/abstract=3104556

Francisco Arizala (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Jesus Gonzalez-Garcia

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Room: HQ2 10A-572
Washington, DC 20431
United States
(202) 6236310 (Phone)
(202) 6236159 (Fax)

Charalambos G. Tsangarides

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Mustafa Yenice

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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