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The asymmetric effect of fiscal policy on private consumption and private investment over a business cycle: Evidence from Sub‐Saharan African countries

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  • Gabriel Temesgen Woldu

Abstract

This study examines the response of private consumption and private investment to an exogenous shock of fiscal policy and estimates the size of fiscal multipliers during periods of economic slacks and positive output gap. Panel vector autoregressive (VAR) estimation technique is performed on a sample of 18 Sub‐Saharan African (SSA) countries for the period 2000–2018. The study finds that the output’s fiscal impact multiplier is larger during contractions than during expansion. Furthermore, in contractions, the fiscal multipliers are 0.06% for private consumption and 0.6% for private investment. Meanwhile, in expansions, they are −0.03 for private consumption and −0.04% for private investment. The findings of this study are consistent with the results of previous studies predicting Keynesian views. Thus, to earn sizable, persistent, and long‐lasting effects through fiscal policy, this study recommends that spending programs should account for countercyclical fiscal policy and consider consumption and investment decisions before implementation. Moreover, the fiscal spending interventions tend to target rule‐of‐thumb households and financially constrained firms. Este estudio explora la respuesta del consumo privado y la inversión privada a una perturbación exógena de la política fiscal y estima el tamaño de los multiplicadores fiscales durante periodos de desaceleración económica y una brecha productiva positiva. Se aplicó la técnica de estimación vectorial autorregresiva de panel sobre una muestra de 18 países del África Subsahariana para el periodo 2000‐2018. El estudio concluye que el multiplicador del impacto fiscal de la producción es mayor durante las contracciones que durante la expansión. Además, en los períodos de contracción, los multiplicadores fiscales son del 0,06% para el consumo privado y del 0,6% para la inversión privada. En cambio, en en los períodos de expansión, son del ‐0,03 para el consumo privado y del ‐0,04% para la inversión privada. Las conclusiones de este estudio coinciden con los resultados de estudios anteriores que predicen nociones keynesianas. Así pues, para obtener efectos considerables, persistentes y duraderos mediante las políticas fiscales, este estudio recomienda que los programas de gasto tengan en cuenta la política fiscal anticíclica y consideren las decisiones de consumo e inversión antes de su aplicación. Además, las intervenciones de gasto fiscal tienden a centrarse en general en los hogares y en las empresas con limitaciones financieras. 本稿では、財政政策の外因性ショックに対する民間消費と民間投資の反応を検討し、経済スラックとプラスの生産量ギャップの期間における財政乗数の規模を推定する。2000~2018年のサブサハラ・アフリカの18カ国のサンプルを用いて、パネルベクトル自己回帰推定の手法で分析した。この研究から、生産量の財政影響乗数は、景気の拡大期よりも後退期の方が大きいことがわかった。さらに、緊縮財政下では、財政乗数は民間消費が0.06%、民間投資が0.6%である。一方、拡大期では、民間消費は−0.03、民間投資は−0.04%である。この結果はケインズ経済学的見解を予測する既存の研究結果と一致している。以上から、財政政策により、大規模で持続的、かつ長期的な効果を得るために、支出プログラムは反循環政策を考慮したものとし、その実施前に消費と投資意思決定を考慮することが推奨される。さらに、財政支出の介入は、rule‐of‐thumb家計や財政的に制約のある企業を対象とする傾向がある。

Suggested Citation

  • Gabriel Temesgen Woldu, 2023. "The asymmetric effect of fiscal policy on private consumption and private investment over a business cycle: Evidence from Sub‐Saharan African countries," Regional Science Policy & Practice, Wiley Blackwell, vol. 15(6), pages 1147-1162, August.
  • Handle: RePEc:bla:rgscpp:v:15:y:2023:i:6:p:1147-1162
    DOI: 10.1111/rsp3.12614
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