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Does pro-cyclical fiscal policy lead to more income inequality? An empirical analysis for sub-saharan Africa

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  • Rasmane Ouedraogo

    (University of Auvergne, Centre d''Etudes et de Recherches sur le Développement International (CERDI))

Abstract

Despite progress in some cases, many Sub-Saharan Africa (SSA) countries are not currently on track to achieve their Millennium Development Goals, particularly those related to poverty and income inequality. This situation is associated to procyclical fiscal policy highlighted in previous literature. This paper examines whether procyclical fiscal policy leads to more income inequality and therefore employs panel data techniques with heterogeneous slope (Mean Group model) covering 30 Sub-Saharan Africa countries over the period from 1985 to 2012. Our results confirm that, not only pro-cyclical fiscal policy is the norm in SSA economies, but also the effect of pro-cyclical fiscal policy on income inequality depends on the type of expenses: pro-cyclical public investment leads to more income inequality, contrary to pro-cyclical government consumption expenditures.

Suggested Citation

  • Rasmane Ouedraogo, 2015. "Does pro-cyclical fiscal policy lead to more income inequality? An empirical analysis for sub-saharan Africa," Economics Bulletin, AccessEcon, vol. 35(2), pages 1306-1317.
    • Handle: RePEc:ebl:ecbull:eb-14-00829
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    File URL: http://www.accessecon.com/Pubs/EB/2015/Volume35/EB-15-V35-I2-P132.pdf
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    References listed on IDEAS

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    1. Frankel, Jeffrey A. & Vegh, Carlos A. & Vuletin, Guillermo, 2013. "On graduation from fiscal procyclicality," Journal of Development Economics, Elsevier, vol. 100(1), pages 32-47.
    2. Pesaran, M. Hashem & Smith, Ron, 1995. "Estimating long-run relationships from dynamic heterogeneous panels," Journal of Econometrics, Elsevier, vol. 68(1), pages 79-113, July.
    3. Mr. Gaston K Mpatswe & Mr. Sampawende J Tapsoba & Mr. Robert C York, 2011. "The Cyclicality of Fiscal Policies in the CEMAC Region," IMF Working Papers 2011/205, International Monetary Fund.
    4. Philippe Aghion & Ioana Marinescu, 2008. "Cyclical Budgetary Policy and Economic Growth: What Do We Learn from OECD Panel Data?," NBER Chapters, in: NBER Macroeconomics Annual 2007, Volume 22, pages 251-278, National Bureau of Economic Research, Inc.
    5. Morten O. Ravn & Harald Uhlig, 2002. "On adjusting the Hodrick-Prescott filter for the frequency of observations," The Review of Economics and Statistics, MIT Press, vol. 84(2), pages 371-375.
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    Cited by:

    1. Vanesa Jorda & Jose M. Alonso, 2020. "What works to mitigate and reduce relative (and absolute) inequality?: A systematic review," WIDER Working Paper Series wp-2020-152, World Institute for Development Economic Research (UNU-WIDER).

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    More about this item

    Keywords

    Pro-cyclicality; fiscal policy; income inequality; Sub-Saharan African countries;
    All these keywords.

    JEL classification:

    • H5 - Public Economics - - National Government Expenditures and Related Policies
    • I3 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty

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