 Chronic Fiscal Deficits and Chronic Inflation in the Burundian Economy: An Empirical Test of the Validity of the Olivera–Tanzi and Patinkin Effects Using ARDL ModelsEmmanuel Nizigiyimana and
Etienne Buregeya
African Journal of Commercial Studies, 2026, vol. 7, issue 2 Abstract: For nearly two decades, the Burundian economy has faced challenges in public finance management. On the one hand, public spending has increased dramatically, and revenues are no longer sufficient to cover it. As a result, the economy is experiencing recurring budget deficits. On the other hand, inflation continues its upward trend, becoming increasingly chronic and pervasive, steadily eroding the purchasing power of the average citizen. Although this situation is underappreciated, the coexistence of twin problems—chronic deficits and chronic inflation—raises fundamental questions about the impact of inflation on public finances, particularly with respect to the theoretical Olivera-Tanzi and Patinkin effects. This study empirically analyzes the Olivera–Tanzi and Patinkin effects in the Burundian economy using quarterly data from 2004:Q1 to 2024:Q2. Real tax revenues and real public expenditures are used as dependent variables, while inflation serves as the primary independent variable. Real GDP, money supply, and real interest rate are included as control variables. The stationarity properties of the variables were tested using ADF and PP unit root tests, which confirmed integration of order I(0) and I(1), supporting the application of the ARDL bounds testing approach. Stability tests (CUSUM and CUSUMSQ) indicated structural breaks in the real tax revenue model, particularly beginning in the second quarter of 2015 due to political violence, leading to the introduction of a dummy variable. The results show that in the short run inflation significantly reduces real tax revenues, confirming the Olivera–Tanzi effect in Burundi. However, results from the public expenditure model indicate that the Patinkin effect does not hold. Instead, inflation contributes to increases in real public expenditures in the long run. The findings highlight the importance of macroeconomic stability and effective fiscal management in addressing persistent fiscal deficits and inflationary pressures in the Burundian economy. Keywords: Chronic Fiscal Deficits; Chronic Inflation; Burundian Economy; Olivera–Tanzi Effect; Patinkin Effect; ARDL Models (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:cwk:ajocsk:2026-24 Access Statistics for this article More articles in African Journal of Commercial Studies from African Journal of Commercial Studies |
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