The determinants and cyclicality of fiscal policy: empirical evidence from east Africa

Joseph Mawejje and Nicholas Odhiambo

No 29841, Working Papers from University of South Africa, Department of Economics

Abstract: As part of the regional integration process, East African Community (EAC) member countries agreed upon macroeconomic convergence criteria that include, among others, harmonizing and restricting the level of fiscal deficits. However, achieving these targets has been faced with heightened vulnerabilities, including those related to the global financial crisis, the COVID-19 pandemic, and domestic policy slippages. Consequently, high fiscal deficits are fast leading to accumulation of debt. This paper investigates the macroeconomic determinants and cyclicality of fiscal policy in a panel of five EAC countries for the period 1980 - 2020. Using a combination of linear and nonlinear panel ARDL methods, long run results show that the fiscal deficit is positively associated with current account balance, real per capita GDP, and interest rate; and negatively associated with the GDP deflator, grants, and debt service. Disaggregating fiscal balances into their revenue and expenditure components shows that government spending is procyclical, while tax effort is countercyclical. Specifically, both government expenditures and tax-to-GDP ratios are positively associated with real per capita GDP regardless of whether this relationship is observed during growth accelerations or decelerations. The size and statistical significance of short run asymmetric effects of real per capita GDP on fiscal policy vary between countries.

Keywords: fiscal policy; tax revenue; government expenditure; cyclicality; East Africa (search for similar items in EconPapers)
Date: 2022-12
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://uir.unisa.ac.za/bitstream/handle/10500/2984 ... %20East%20Africa.pdf (application/pdf)

Related works:
Journal Article: The determinants and cyclicality of fiscal policy: Empirical evidence from East Africa (2022)
Journal Article: The determinants and cyclicality of fiscal policy: Empirical evidence from East Africa (2022)
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:uza:wpaper:29841

Access Statistics for this paper

More papers in Working Papers from University of South Africa, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Shaun Donovan ().