The effectiveness of fiscal policy in DR Congo: Spending and taxing for macroeconomic impact

M'pya Banza M, Mumbere Lubula E and Kamala Kaghoma C

Journal of Policy Modeling, 2025, vol. 47, issue 2, 298-321

Abstract: This paper investigates the effectiveness of fiscal policy in the Democratic Republic of Congo (DRC), focusing on its impact on GDP, aggregate demand, private consumption, and investment. Employing a medium-scale dynamic stochastic general equilibrium (DSGE) model with Bayesian estimation, the study accounts for the distinct dynamics of Ricardian and non-Ricardian households within the DRC’s socio-economic context. The results indicate that public investment expenditures significantly enhance GDP and household consumption, while current expenditures often fail to stimulate aggregate demand due to corruption and inefficiencies. Conversely, tax reductions are shown to positively influence macroeconomic variables, underlining their importance in fiscal policy design. The findings highlight the critical role of well-targeted fiscal strategies in promoting economic stability and growth in developing economies. Policy recommendations emphasize prioritizing public investment, implementing tax reforms during economic downturns, and addressing systemic corruption to maximize fiscal policy’s macroeconomic impact.

Keywords: DSGE; Bayesian estimation; Fiscal policy; Ricardian household; Non Ricardian household (rule-of-thumb); Fiscal multiplier (search for similar items in EconPapers)
JEL-codes: E32 E62 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jpolmo:v:47:y:2025:i:2:p:298-321

DOI: 10.1016/j.jpolmod.2025.01.002

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