Fiscal consolidation and asymmetric macroeconomic effects: Evidence from Sub-Saharan African countries

Ruth Badru, Andrea Calef, Ayobami E. Ilori and Oluwasola E. Omoju

Economic Modelling, 2025, vol. 147, issue C

Abstract: This paper examines the macroeconomic effects of fiscal consolidation in Sub-Saharan Africa (SSA), addressing the region's rising debt levels and constrained fiscal space. Existing literature has explored fiscal policy's cyclical behaviour and structural constraints; however, gaps remain in understanding the heterogeneous effects of consolidation across debt levels, economic phases, and country classifications. Using the local projection approach on annual data from 1995 to 2022 for a panel of 37 SSA countries, we find that fiscal consolidation has an expansionary effect on output while reducing the debt-to-GDP ratio, with stronger impacts in highly indebted, resource-rich, and institutionally weak economies. Furthermore, expenditure-based adjustments outperform revenue-based measures, particularly during recessions, where effects are deep but short-lived, compared to milder but persistent impacts during expansions. These findings offer new insights into how debt levels and resource endowments shape fiscal outcomes, guiding targeted, context-sensitive strategies to balance growth and debt sustainability in SSA.

Keywords: Fiscal consolidation; Macroeconomic effects; Local projection; Nonlinearities; Sub-Saharan Africa (search for similar items in EconPapers)
JEL-codes: E32 E63 E65 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:147:y:2025:i:c:s0264999325000471

DOI: 10.1016/j.econmod.2025.107052

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