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Cyclical fiscal policy in developing countries: the case of Africa

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The paper documents three pieces of empirical evidence on fiscal policy in Africa. First, a bigger government increases the volatility of output growth. Second, fiscal policy has substantially Keynesian effects. Third, fiscal policy instruments in Africa behave either pro-cyclically or a-cyclically, but practically never counter-cyclically. Taken together, these three findings imply that fiscal policy does not contribute to output stabilization. Quite the contrary, in several African countries fiscal policy is a source of volatility. Given the large development costs of volatility, ways to encourage the adoption of a counter-cyclical fiscal policy stance are then discussed.

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File URL: http://www.uq.edu.au/economics/mrg/2408.pdf
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Paper provided by School of Economics, University of Queensland, Australia in its series MRG Discussion Paper Series with number 2408.

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Handle: RePEc:qld:uqmrg6:24

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  1. Alan Sutherland, . "Fiscal Crises and Aggregate Demand: Can High Public Debt Reverse the Effects of Fiscal Policy?," Discussion Papers 95/17, Department of Economics, University of York.
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  12. Schclarek, Alfredo, 2003. "Fiscal Policy and Private Consumption in Industrial and Developing Countries," Working Papers 2003:20, Lund University, Department of Economics, revised 30 Sep 2005.
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  15. Hnatkovska, Viktoria & Loayza, Norman, 2004. "Volatility and growth," Policy Research Working Paper Series 3184, The World Bank.
  16. Martin, Philippe & Ann Rogers, Carol, 2000. "Long-term growth and short-term economic instability," European Economic Review, Elsevier, vol. 44(2), pages 359-381, February.
  17. Andres, Javier & Domenech, Rafael & Fatas, Antonio, 2008. "The stabilizing role of government size," Journal of Economic Dynamics and Control, Elsevier, vol. 32(2), pages 571-593, February.
  18. Bas van Aarle & Harry (ed.) Garretsen, 2001. "Keynesian, Non-Keynesian or No Effects of Fiscal Policy Changes? The EMU Case," CESifo Working Paper Series 570, CESifo Group Munich.
  19. Stephane Pallage & Michel A. Robe, 2003. "On the Welfare Cost of Economic Fluctuations in Developing Countries," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(2), pages 677-698, 05.
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