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Impact of Output Gap, COVID-19, and Governance Quality on Fiscal Space in Sub-Saharan Africa

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  • Blessing Katuka

    (Department of Economics and Finance, University of the Free State, Bloemfontein 9301, South Africa)

  • Calvin Mudzingiri

    (Department of Economics and Finance, University of the Free State, Bloemfontein 9301, South Africa)

Abstract

This study examined the determinants of fiscal space within the Sub-Saharan Africa (SSA) region, utilising a panel of 33 countries from 2005 to 2021. The paper applied the panel threshold, difference, and system generalised method of moments (GMM) regression techniques. The empirical results found evidence of constrained fiscal space and poor governance in Central, Western, and Eastern Africa. The results further unveiled that an enhancement in governance indicators beyond −0.23 for the governance index, −0.15 for control of corruption, −0.98 for the rule of law, −0.37 for regulatory quality, −0.15 for voice and accountability, +0.36 for political stability, and −0.61 for government effectiveness, respectively, increase fiscal space. Moreover, the study concluded that the output gap, COVID-19, trade openness, and economic growth impact fiscal space availability in Central, Western, Southern, and Eastern Africa. The paper investigated whether the COVID-19 pandemic and governance quality significantly influenced fiscal space within SSA. We strongly recommend enhancement in all facets of governance through comprehensive restructuring of governance policies across all SSA countries. Another key recommendation is fostering trade openness to expand tax revenue generation and broaden the tax base, thereby providing the continent with greater fiscal space and improved resilience to unforeseen shocks.

Suggested Citation

  • Blessing Katuka & Calvin Mudzingiri, 2023. "Impact of Output Gap, COVID-19, and Governance Quality on Fiscal Space in Sub-Saharan Africa," Economies, MDPI, vol. 11(10), pages 1-20, October.
    • Handle: RePEc:gam:jecomi:v:11:y:2023:i:10:p:256-:d:1258799
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    More about this item

    Keywords

    de facto fiscal space; output gap; governance quality; COVID-19 pandemic; panel threshold regression; Hamilton regression filter;
    All these keywords.

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General

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