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The effectiveness of fiscal policy in DR Congo: Spending and taxing for macroeconomic impact

Author

Listed:
  • Banza M, M'pya
  • Lubula E, Mumbere
  • Kaghoma C, Kamala

Abstract

This paper investigates the effectiveness of fiscal policy in the Democratic Republic of Congo (DRC), focusing on its impact on GDP, aggregate demand, private consumption, and investment. Employing a medium-scale dynamic stochastic general equilibrium (DSGE) model with Bayesian estimation, the study accounts for the distinct dynamics of Ricardian and non-Ricardian households within the DRC’s socio-economic context. The results indicate that public investment expenditures significantly enhance GDP and household consumption, while current expenditures often fail to stimulate aggregate demand due to corruption and inefficiencies. Conversely, tax reductions are shown to positively influence macroeconomic variables, underlining their importance in fiscal policy design. The findings highlight the critical role of well-targeted fiscal strategies in promoting economic stability and growth in developing economies. Policy recommendations emphasize prioritizing public investment, implementing tax reforms during economic downturns, and addressing systemic corruption to maximize fiscal policy’s macroeconomic impact.

Suggested Citation

  • Banza M, M'pya & Lubula E, Mumbere & Kaghoma C, Kamala, 2025. "The effectiveness of fiscal policy in DR Congo: Spending and taxing for macroeconomic impact," Journal of Policy Modeling, Elsevier, vol. 47(2), pages 298-321.
    • Handle: RePEc:eee:jpolmo:v:47:y:2025:i:2:p:298-321
    DOI: 10.1016/j.jpolmod.2025.01.002
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    Keywords

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    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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