Cyclical fiscal policy in Africa

Abstract

This paper studies the role of fiscal policy for stabilization in African countries. Two empirical regularities are documented for the group of African economies. First, fiscal policy generally has Keynesian effects. Second, fiscal policy instruments are often pro-cyclical (and practically never counter-cyclical). Taken together these two empirical regularities indicate a major policy failure as they imply that fiscal policy is a cause of volatility and not a tool for stabilization. The paper then discusses policy options to make fiscal policy more conducive to stabilization.