Regime Changes and Fiscal Sustainability in Kenya with Comparative Nonlinear Granger Causalities Across East-African Countries

William Nganga Irungu, Julien Chevallier and Simon Wagura Ndiritu

No 2020-011, Working Papers from Department of Research, Ipag Business School

Abstract: This study seeks to investigate the nature of fiscal policy regime in Kenya, and the extent to which fiscal policy is sustainable in the long run by taking into account periodic regime changes. Markov switching models were used to determine fiscal policy regimes endogenously. Regime switching tests were used to test whether the No-Ponzi game condition and the debt stabilizing condition were met. The results established that the regime-switching model was suitable in explaining regime sustainable and sustainable cycles. An investigation of fiscal policy regimes established that both sustainable and unsustainable regimes were dominant and each lasted for an average of four years. There was evidence to suggest the existence of procyclical fiscal policy in Kenya. Regime switching tests for long-run sustainability suggested that the No-Ponzi game condition weakly holds in the Kenyan economy. Regime-based sensitivity analysis suggests that the persistence of unsustainability regime for more than four years could threaten long-run fiscal sustainability. Sensitivity tests are conducted by resorting to (i) Self-Exciting Threshold Autoregressive Models at the country-level, and (ii) non-linear Granger causalities across a FeedForward Artificial Neural Network composed of East-African countries (Burundi, Kenya, Rwanda, Tanzania and Uganda).

Keywords: Fiscal policy; Markov-switching; No-Ponzi game condition; SETAR; Non-linear Granger causality; Feed-Forward Artificial Neural Network (search for similar items in EconPapers)
JEL-codes: E62 F30 H61 (search for similar items in EconPapers)
Pages: 50 pages
Date: 2020-01-01
New Economics Papers: this item is included in nep-big, nep-mac and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://faculty-research.ipag.edu/wp-content/uploa ... IPAG_WP_2020_011.pdf (application/pdf)

Related works:
Working Paper: Regime changes and fiscal sustainability in Kenya with comparative nonlinear Granger causalities across East-African countries (2018)
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:ipg:wpaper:2020-011

Access Statistics for this paper

More papers in Working Papers from Department of Research, Ipag Business School Contact information at EDIRC.
Bibliographic data for series maintained by Ingmar Schumacher ().