Tying One’s Hand: The Effect of Fiscal Rules on the Political Business Cycle in Africa

Christine Olivia

Journal of African Economies, 2023, vol. 32, issue 4, 438-467

Abstract: In this paper, we test whether fiscal rules can act as a constraint on the ability of incumbent politicians to generate political business cycles using fiscal and monetary expansions, to improve their re-election prospects. Using data on fiscal rules for a sample of thirty-two African countries, fourteen of which have a budget balanced rule, our results show that stringent fiscal rules can indeed dampen political cycles. In particular, we find that prior to a presidential election, there is a statistically significant increase in money growth, but that increase is on average 50% less in countries with fiscal rules compared with countries with no rule. Our results hold even when we control for institutional quality, developmental assistance or electoral competitiveness. Moreover, we find evidence of political cycles in African dictatorships, which we argue potentially reflect African dictators’ strong desire to reduce the occurrence of civil unrest during elections.

Keywords: Africa; government debt; elections; fiscal rules; JEL Codes: C01; E02; E62; H63; O11 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1093/jae/ejac014 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:jafrec:v:32:y:2023:i:4:p:438-467.

Ordering information: This journal article can be ordered from
https://academic.oup.com/journals

Access Statistics for this article

Journal of African Economies is currently edited by Francis Teal

More articles in Journal of African Economies from Centre for the Study of African Economies Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK. Contact information at EDIRC.
Bibliographic data for series maintained by Oxford University Press ().