To Starve the Beast or Not to Starve the Beast? Evidence from Debt-Distressed Region

Ntokozo Nzimande and Veli Yilanci

Journal of African Business, 2025, vol. 26, issue 2, 438-453

Abstract: The elimination of budgetary disequilibrium remains a contentious issue, with scholars and policymakers debating the efficacy of tax alterations versus limiting government outlays. This topic has garnered significant attention, although research on the spending-revenue nexus is noticeably skewed against Africa, which presents an intriguing research opportunity. The International Monetary Fund (IMF) reported a concerning rise in public debt across Africa, highlighting the urgent need for public finance consolidation. In contrast to the extant literature, this study examines the dynamic link between revenues and expenditures from 1990 to 2022. Applying wavelet decomposition to account for temporary variations, our analysis reveals dynamic patterns in the revenue-expenditure nexus. Our findings support the institutional separation hypothesis in the short run, suggesting a distinct relationship between revenues and outlay. However, in the medium-to long-run, our results support the fiscal synchronization hypothesis, accentuating a more intertwined association between revenues and expenditures. This study sheds light on the nuanced dynamics of budgetary equilibrium in Africa, providing insights that can inform policy priorities and decision-making. Finally, by focusing on the unique context of Africa and using advanced techniques, this study contributes to the existing literature on budgetary equilibrium, filling a crucial gap in our knowledge of the public finance dynamics in the region.

Date: 2025
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DOI: 10.1080/15228916.2024.2408062

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