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Governance and Fiscal Sustainability: Evidence from Developed and Emerging Economies

Author

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  • Seydou Nourou Ndiaye

    (Laboratory of Finance for Development (LAFIDEV), Centre for Applied Economic Research (CREA), Faculty of Economics and Management, Cheikh Anta Diop University, Fann BP. 5084, Dakar 10700, Senegal)

  • Zakari-yaou Doulla Harouna

    (Laboratory of Finance for Development (LAFIDEV), Centre for Applied Economic Research (CREA), Faculty of Economics and Management, Cheikh Anta Diop University, Fann BP. 5084, Dakar 10700, Senegal)

  • Adama Sow Badji

    (Laboratory of Finance for Development (LAFIDEV), Centre for Applied Economic Research (CREA), Faculty of Economics and Management, Cheikh Anta Diop University, Fann BP. 5084, Dakar 10700, Senegal)

  • Babacar Sène

    (Laboratory of Finance for Development (LAFIDEV), Centre for Applied Economic Research (CREA), Faculty of Economics and Management, Cheikh Anta Diop University, Fann BP. 5084, Dakar 10700, Senegal)

Abstract

The quality of governance is a key driver of resource mobilisation in a context marked by successive shocks that exacerbate fiscal imbalances. This study aims to analyse the role of institutional quality in the relationship between public expenditure and tax revenue in a panel of 162 countries, broken down into developed and emerging economies between 2000 and 2023. Using causality tests and the cross-sectional autoregressive model with staggered lags (CS-ARDL) to control for cross-sectional heterogeneity and cross-dependence, the results reveal a bidirectional causality linking expenditure and revenue for the entire panel; emerging countries are more sensitive to fiscal policies; public expenditure significantly stimulates tax revenue in the short and long term, with an effect amplified by institutional quality; long-term sustainability depends crucially on the institutional framework. This study highlights the need for targeted institutional reforms and fiscal rules differentiated according to countries’ level of economic development.

Suggested Citation

  • Seydou Nourou Ndiaye & Zakari-yaou Doulla Harouna & Adama Sow Badji & Babacar Sène, 2026. "Governance and Fiscal Sustainability: Evidence from Developed and Emerging Economies," IJFS, MDPI, vol. 14(3), pages 1-26, March.
    • Handle: RePEc:gam:jijfss:v:14:y:2026:i:3:p:70-:d:1880713
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