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Cyclical fiscal policy in developing countries: the case of Africa

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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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. Schclarek, Alfredo, 2007. "Fiscal policy and private consumption in industrial and developing countries," Journal of Macroeconomics, Elsevier, vol. 29(4), pages 912-939, December.
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  5. Alberto Alesina & Filipe Campante & Guido Tabellini, . "Why is Fiscal Policy Often Procyclical?," Working Paper 248206, Harvard University OpenScholar.
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  8. Sutherland, Alan, 1997. "Fiscal crises and aggregate demand: can high public debt reverse the effects of fiscal policy?," Journal of Public Economics, Elsevier, vol. 65(2), pages 147-162, August.
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  11. Graciela L. Kaminsky & Carmen M. Reinhart & Carlos A. Végh, 2005. "When It Rains, It Pours: Procyclical Capital Flows and Macroeconomic Policies," NBER Chapters, in: NBER Macroeconomics Annual 2004, Volume 19, pages 11-82 National Bureau of Economic Research, Inc.
  12. Rodrik, Dani, 1996. "Why do More Open Economies Have Bigger Governments?," CEPR Discussion Papers 1388, C.E.P.R. Discussion Papers.
  13. Carmignani, Fabrizio, 2008. "The impact of fiscal policy on private consumption and social outcomes in Europe and the CIS," Journal of Macroeconomics, Elsevier, vol. 30(1), pages 575-598, March.
  14. van Aarle, Bas & Garretsen, Harry, 2003. "Keynesian, non-Keynesian or no effects of fiscal policy changes? The EMU case," Journal of Macroeconomics, Elsevier, vol. 25(2), pages 213-240, June.
  15. Giavazzi, Francesco & Jappelli, Tullio & Pagano, Marco, 2000. "Searching for non-linear effects of fiscal policy: Evidence from industrial and developing countries," European Economic Review, Elsevier, vol. 44(7), pages 1259-1289, June.
  16. Newey, Whitney K & West, Kenneth D, 1987. "Hypothesis Testing with Efficient Method of Moments Estimation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(3), pages 777-87, October.
  17. Hnatkovska, Viktoria & Loayza, Norman, 2004. "Volatility and growth," Policy Research Working Paper Series 3184, The World Bank.
  18. M. Ayhan Kose & Eswar S. Prasad & Marco E. Terrones, 2005. "Growth and Volatility in an Era of Globalization," IMF Staff Papers, Palgrave Macmillan, vol. 52(si), pages 31-63.
  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.
  20. Fatas, Antonio & Mihov, Ilian, 2001. "Government size and automatic stabilizers: international and intranational evidence," Journal of International Economics, Elsevier, vol. 55(1), pages 3-28, October.
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