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Reducing the Increasing Effect of Fiscal Expenditure on Government Debts: Does Financial Sector Transparency Matter?

Author

Listed:
  • Baah A. Kusi

    (Madina, Ghana)

  • Emmanuel Senanu Mekpor

    (Oxford, UK)

  • Elikplimi K. Agbloyor

    (Madina, Ghana)

  • Simplice A. Asongu

    (Johannesburg, South Africa)

Abstract

In this study, we attempt to examine how transparency in the financial sector (financial sector transparency) moderates the increasing effect of fiscal expenditure on government debts using 23 African economies over a 16-year period. The study employs two-step dynamic GMM panel models with additional controls for year and country effects. The results show that (i) FST and fiscal expenditure both increase government debts but the combine effect of these two offers a synergetic-reducing effect on government debts, (ii) economies with transparent financial sector systems are able to effectively suppress the increasing effect of fiscal expenditure on government debts and (iii) the increasing effect of expenditure is evident in both transparent and opaque financial sector economies though the increasing effect of fiscal expenditure is lower in transparent financial sector systems in Africa. These results highlight the important but unexplored government debt reducing the effect of FST through fiscal expenditure, implying that policymakers can rely on FST to tame the increasing effect of fiscal expenditure on government debts while enacting laws and policies to expand the depth and coverage of FST to harness the government debt reducing effect of FST through fiscal expenditure.

Suggested Citation

  • Baah A. Kusi & Emmanuel Senanu Mekpor & Elikplimi K. Agbloyor & Simplice A. Asongu, 2025. "Reducing the Increasing Effect of Fiscal Expenditure on Government Debts: Does Financial Sector Transparency Matter?," Working Papers of the African Governance and Development Institute. 25/055, African Governance and Development Institute..
    • Handle: RePEc:agd:wpaper:25/055
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    File Function: Revised version, 2025
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    Keywords

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    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H6 - Public Economics - - National Budget, Deficit, and Debt

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