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The Non-Linear Relationship Between Fiscal Deficits And Inflation: Evidence From Africa

Author

Listed:
  • Abu Nurudeen

    (Othman Yeop Abdullah Graduate School of Business Univeristi Utara Malaysia)

  • Karim Mohd Zaini Abd

    (Othman Yeop Abdullah Graduate School of Business Univeristi Utara Malaysia)

Abstract

Although, there is abundant research on the fiscal deficit-inflation relationship, little has been done to investigate the non-linear association between them, particularly in Africa. This study employs fixed-effects and GMM estimators to examine the non-linear relationship between deficits and inflation from 1999 to 2011 in 51 African economies, which are further grouped into high-inflation/low-income countries and moderate-inflation/middle-income countries. The results indicate that the deficit-inflation relationship is non-linear for the whole sample and sub-groups. For the whole sample, a percentage point increase in deficit results in a 0.25 percentage point increase in inflation rate, while the relationship becomes quantitatively greater once deficits reach 23% of GDP. The subsamples report different relationships. Although our results cannot be used as the base for generalization, we identify importance of grouping African countries according to their levels of inflation and/or income, rather than treating them as a homogeneous entity.

Suggested Citation

  • Abu Nurudeen & Karim Mohd Zaini Abd, 2015. "The Non-Linear Relationship Between Fiscal Deficits And Inflation: Evidence From Africa," South East European Journal of Economics and Business, Sciendo, vol. 10(2), pages 102-112, December.
    • Handle: RePEc:vrs:seejeb:v:10:y:2015:i:2:p:102-112:n:7
    DOI: 10.1515/jeb-2015-0013
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    Citations

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    Cited by:

    1. Olusola Joel Oyeleke, 2021. "On the Non-Linear Relationship between Fiscal Deficit and Inflation: The Nigeria Experience," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 27(2), pages 105-117, May.
    2. Bello, Abdulmajeed Kumo & Joshua Adams Ndako & Yusuf, Fadimah & Amodu Amina Ejura, 2023. "Fiscal Dominance and Monetary Policy Efficacy in Nigeria," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 7(10), pages 857-877, October.
    3. Joel Oyeleke*, Olusola, 2021. "Frequency Domain Approach To Causality Among Fiscal Deficit, Interest Rates And Inflation In Nigeria," Ilorin Journal of Economic Policy, Department of Economics, University of Ilorin, vol. 8(1), pages 46-59, June.

    More about this item

    Keywords

    Fiscal deficits; inflation; Africa;
    All these keywords.

    JEL classification:

    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General

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