Does fiscal policy differ between successful and unsuccessful post-conflict transitions? Lessons from African Civil Wars

Purpose- The chapter studies the impact of fiscal policy on the stabilization of peace in the aftermath of a civil war. Methodology- We use data from African war-torn countries and study the issue of post-conflict stabilization from an empirical perspective. We employ probit analysis to formally estimate the effect of fiscal policy on the probability of maintaining peace in the post-conflict period. Findings- The success of post-conflict transition does not require downsizing the government. On the contrary, successful post-conflict transitions are on average characterised by an increase in the size of the government. However, both expenditures and revenues increase at a comparable pace. Moreover, in successful post-conflict transitions, the increase in government size involves an increase in the incidence of capital expenditure relative to government consumption. On the revenue side, budgetary grants appear to strengthen the chances of success. A heavier debt burden does not seem to compromise the probability of successfully completing the post-conflict transition. Research limitations/Implications: Future research should (i) extend the sample to non-African countries, (ii) extend the analysis to other macroeconomic policy variables, and (iii) supplement cross-country analysis on the role of fiscal policy with country case studies. A potential application of the findings of this chapter is the construction of a model to predict the evolution of currently ongoing post-conflict transitions. Social implications- The findings bear implications on how governments should conduct fiscal policy in the aftermath of a conflict. They also provide guidelines for the international community on how best to assist post-conflict economies. Originality- Papers concerned with the determinants of peace in the post-conflict period do not generally look at the potential contribution of fiscal policy. This chapter is the first attempt, to the best of our knowledge, to provide econometric evidence on the role of fiscal policy as a possible driver of peace stabilization in the aftermath of a conflict.