Political business cycle and fiscal discipline in Sub-Saharan Africa
Article Sidebar
Main Article Content
Abstract
We tested the Political Business Cycle theory in Sub-Sahara Africa. To provide an empirical explanation for this nexus, this paper used unbalanced panel data from thirty-six (36) Sub-Saharan African countries between 1990 and 2018. The system Generalized Method of Moment (GMM) developed by Arrelano-Bover/Blundell-Bond was employed to analyze the collected data. The results of the system GMM revealed that the fiscal deficit is significantly large in election years and the deficit spending spills into the year after the election, though not as high as in the election year. We could not, however, find a significant effect in the pre-election year. In addition, we found evidence suggesting that though democracy significantly lowers the fiscal deficit, it promotes higher deficit spending in the election year and the year after the election. Hence, the study established the existence of a political business cycle in Sub-Saharan African countries. The study thus recommends that sound economic policies should be put in place to reduce the persistent deficit in SSA so as to maintain sustainable fiscal health, as well as the sustainability of macroeconomics, particularly enhanced industrialization, as the study found that countries' fiscal deficits are lower in more industrialized countries in the region.
Keywords:
Downloads
Article Details
References
Acemoglu, D., Johnson, J., Robinson, A., and Thaicharoen, Y. (2003). Institutional causes, macroeconomics symptoms: Volatility, crises and growth. Journal of Monetary Economics 50, 49-123. https://doi.org/10.1016/S0304-3932(02)00208-8
Acemoglu, D., Johnson, S and Robinson, J. A. (2001). The colonial origins of comparative development: An empirical investigation. American Economic Review 91, 1369-1401. https://doi.org/10.1257/aer.91.5.1369
Adeyi, V. A. (2014) Money in political parties and democracy in Nigeria. Kuru. National Institute of Policy and Strategic Studies 2(5), 289-313.
African Elections Data Base (2016). Elections in Nigeria. Retrieved from http://www.africanelections.org
Aidt, T., F., & Veiga, L. (2011). ‘Election results and opportunistic policies: A new test of the rational political business cycle model’. Public Choice 148, 21–44. https://doi.org/10.1007/s11127-010-9644-3
Aidt T., Asatryan, Z., Badalyan L., & Heinemann, F. (2015). Vote buying or Political Business Cycles as Usual? ZEW Discussion Paper No.15-017. https://doi.org/10.2139/ssrn.2580781
Akhmedov, A. & Zhuravskaya, E. (2004). ‘Opportunistic political cycles: Test in a young democracy setting. Quarterly Journal of Economics 119, 1301–1338. https://doi.org/10.1162/0033553042476206
Alesina, A., & Tabellini. G. (1990). “Voting on the budget deficit.” American Economic Review 80(1), 37-49
Alesina, A., & Paradisi, M. (2017). Political budget cycles: Evidence from Italian cities. Economics & Politics 29(2), 157-177. https://doi.org/10.1111/ecpo.12091
Alesina, A., & Perotti, D. (1999). Budget deficits and budget institutions, NBER Chapters, Fiscal Institutions and Fiscal Performance 2, 13–36.
Alesina, A., & Tabellini. 1990. “Voting on the budget deficit,” American Economic Review 80(1), 37-49.
Arjomanda, M., Emamib, K., & Salimic, F. (2016). Growth and productivity: The role of budget deficit in the MENA selected countries. Procedia Economics and Finance 36, 345-352. https://doi.org/10.1016/S2212-5671(16)30046-6
Arowolo, D. (2011) Fiscal federalism in Nigeria: Theory and dimensions. Afro Asian Journal of Social Sciences 2(22), 1-22.
Arrelano, M., & Bond, S. (1991). “Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. Review of Economic Studies, 58, 277-279. https://doi.org/10.2307/2297968
Blundell, R. & Bond, S. (1998). Initial conditions and moment restrictions in dynamic panel data models. Journal of Econometrics 87, 115-143. https://doi.org/10.1016/S0304-4076(98)00009-8
Balaguer-Coll, M. T., Brun-Martos, M. I., Forte, A., & Tortosa-Ausina, E. (2015). Local governments' re-election and its determinants: New evidence based on a Bayesian approach. European Journal of Political Economy 39, 94-108. https://doi.org/10.1016/j.ejpoleco.2015.04.004
Baltagi, B.H. (2008). Econometric Analysis of Panel Data. 6th Edition, Wiley, Chichester.
Barberia, L. G. & Avelino, G. (2011). ‘Do political budget cycles differ in Latin American Democracies? Economia 11, 101–134. https://doi.org/10.1353/eco.2011.0001
Batool, I., & Sieg, G. (2009). Pakistan, politics and political business cycles. Working Paper Series, No. 7, Technische Universität Braunschweig, Institut für Volkswirtschaftslehre, Braunschweig
Bhatia, H.L. (2003). Public Finance: Vikas Publishing House Pvt Limited.
Block, S. A. (2002). Political business cycles, democratization and economic reform: The case of Africa. Journal of Development Economics 67(2), 5–28. https://doi.org/10.1016/S0304-3878(01)00184-5
Block, S. A., Ferree, K., & Singh, S. (2003). Multiparty competition, founding elections and political business cycles in Africa. Journal of African Economies 12(3), 444–68. https://doi.org/10.1093/jae/12.3.444
Blundell, R., & Bond, S. (1998). Initial conditions and moment restrictions in dynamic panel data models. Journal of Econometrics 87, 115-143. https://doi.org/10.1016/S0304-4076(98)00009-8
Bohn, F. (2018). Political budget cycles, incumbency advantage, and propaganda. Economics & Politics. 2, 1-28. https://doi.org/10.1111/ecpo.12122
Brender, A., & Drazen, A. (2008). “How do budget deficits and economic growth affect re-election prospects?” Evidence from a large cross-section of countries. American Economic Review 98, 2203–2220. https://doi.org/10.1257/aer.98.5.2203
Buscemi, A., & Yallwe, A. H. (2012). Fiscal deficit, national saving and sustainability of economic growth in emerging economies: A dynamic GMM panel data approach. International Journal of Economics and Financial Issues, 2(2), 126-140.
Cinar, M., ˙Ilhan, E.G., & Baki, D. (2014). Examining the role of budget deficit policies in economic growth from a Keynesian Perspective. International Journal of Economics and Finance 6(3), 23-41. https://doi.org/10.5539/ijef.v6n10p191
Chortareas, G., Logothetis, V., & Papandreou, A. A. (2016). Political budget cycles and re-election prospects in Greece's Municipalities. European Journal of Political Economy 43, 1-13. https://doi.org/10.1016/j.ejpoleco.2016.02.001
Collier, P., & Vicente, P. C. (2010). Violence, bribery, and fraud: The political economy of elections in Sub-Saharan Africa. Oxford University Working Paper.
De Haan, J., & Klomp, J. (2013). Conditional political budget cycles: A review of recent evidence. Public Choice 157, 387–410. https://doi.org/10.1007/s11127-013-0106-6
Drazen, A., & Eslava M. (2010). Electoral manipulation via voter friendly spending: Theory and evidence. Journal of Development Economics 92(1), 39-52. https://doi.org/10.1016/j.jdeveco.2009.01.001
Drazen, A., & Eslava, M. (2005). Electoral manipulation via expenditure composition: Theory and evidence, Working Paper 11085, Cambridge, MA: National Bureau of Economic Research. https://doi.org/10.3386/w11085
Ebeke, C., & Ölçer, D. (2013). Fiscal Policy over the election cycle in low-income countries, IMF working paper WP/13/153. https://doi.org/10.5089/9781475588514.001
Enkelmann, S., & Leibrecht, M. (2013). Political expenditure cycles and election outcomes: Evidence from disaggregation of public expenditures by economic functions. Economics Letters 121(1), 128–132. https://doi.org/10.1016/j.econlet.2013.07.015
Fabrizio, S., & Mody, A. (2006). Can budget institutions counteract political indiscipline? European Economic Review 54(2), 269–278.
Fatás, A., & Mihov, I. (2006). The macroeconomic effects of fiscal rules in the US States. Journal of Public- Economics 90(1-2), 101-1 17. https://doi.org/10.1016/j.jpubeco.2005.02.005
Ferree, K. E., Gibson, C. C., & Long, J. D. (2014). Voting behavior and electoral irregularities in Kenya’s 2013 election. Journal of East African Studies 8(1), 153–172. https://doi.org/10.1080/17531055.2013.871182
Grier, K. (2008). Presidential elections and real gdp growth in the USA, 1961 – 2004. Public Choice 135(3- 4), 337-352. https://doi.org/10.1007/s11127-007-9266-6
Higashijima, M. (2016). Political business cycles in dictatorships. WIAS Discussion Paper No.2016-002
Haider, A. S. M., Shakil, S., Fatema, S., & Rezaul, K. M. (2016). Impact of budget deficit on growth: An empirical case study on Bangladesh. Available online: https://www.researchgate.net/publication/298971557 (accessed on 31 May 2017).
Hassan, B. S., & Hassan, A. O. (2011). Ethnic politics and its implications for the survival of democracy in Nigeria. Journal of Public Administration and Policy Research 3(2), 28-33.
Hibbs, D. (1977) Political parties and macroeconomic policy. American Political Science Review 71(14), 67-87. https://doi.org/10.1017/S0003055400269712
Hussain, M.E., & Haque, M. (2017). Fiscal deficit and its impact on economic growth: Evidence from Bangladesh. Economies 5(37), 1-19. https://doi.org/10.3390/economies5040037
Ifere, E. O., & Okoi, O. B. (2018). Political economy of fiscal deficits in a democracy. Economia 19(1), 12–23. https://doi.org/10.1016/j.econ.2017.10.002
Jensen, P. S. & Justesen, M. K. (2014). Poverty and vote buying: Survey-based evidence from Africa. Electoral Studies 33(2), 220–232. https://doi.org/10.1016/j.electstud.2013.07.020
Jochimsen, B., & Nuscheler, R. (2011). The political economy of the German Länder deficits: Weak governments meet strong finance ministers. Applied Economics 43(19), 2399-2415. https://doi.org/10.1080/00036840903194246
Jones, M. P., Meloni, O., & Tommasi, M. (2012). Voters as fiscal liberals: Incentives and accountability in federal systems. Economics & Politics, 24(2), 135–156. https://doi.org/10.1111/j.1468-0343.2012.00395.x
Klomp, J., & De Haan, J. (2012a). Political budget cycles and election outcomes. Public Choice 2(1), 1-23. https://doi.org/10.1007/s11127-012-9943-y
Klomp, J., & de Haan, J. (2012b). Conditional Election and Partisan Cycles in Government Support to the Agricultural Sector: An Empirical Analysis. American Journal of Agricultural Economics 95(4), 793–818. https://doi.org/10.1093/ajae/aat007
Klomp, J. & De Haan, J. (2013). Do political budget cycles really exist? Applied Economics 45(3), 329-341. https://doi.org/10.1080/00036846.2011.599787
Kneebone, R. & McKenzie, K. (2001). “Electoral and partisan cycles in fiscal policy: An examination of Canadian Provinces. International Tax and Public Finance 8, 753-774. https://doi.org/10.1023/A:1012895211073
KoKsal, B., Ahmet C., & Kan, A. (2012). Political business cycles and partisan politics: Evidence from a developing economy. Economic and Politic 2(24), 182-199. https://doi.org/10.1111/j.1468-0343.2012.00397.x
Krause, G. A. (2005). Electoral incentives, political business cycles and macroeconomic performance: Empirical evidence from post-war US personal income growth. British Journal of Political Science 35(1),77-101. https://doi.org/10.1017/S0007123405000049
Lewis-Beck, M. S. (1990). Economics and elections: The major western democracies, Ann Arbor, MI, University of Michigan Press. https://doi.org/10.3998/mpub.8153
Lilly, B. (2012). The canadian political business cycle. The Economic and Business History Society 5, 1-38.
Maltritz, D. (2015). Determinants of budget deficits in Europe: The role and relation of fiscal rules, fiscal councils, creative accounting and the Euro. Economic Modelling 48, 222-23. https://doi.org/10.1016/j.econmod.2014.12.001
Manasse, P. (2006). Pro-cyclical Fiscal Policy: Shocks, rules, and institutions-A view from Mars. IMF Working Paper WP/06/27. https://doi.org/10.5089/9781451862874.001
Mandon, P., & Cazals, A. (2019). Political budget cycles: Manipulation by leaders versus manipulation by researchers? Evidence from a meta-regression analysis. Journal of Economic Surveys 33(1), 274–308. https://doi.org/10.1111/joes.12263
Mohanty, R. K. (2012). Fiscal deficit-economic growth nexus in India: A cointegration analysis. Ph.D. Dissertation. Centre for Economic Studies & Planning, School of Social Sciences, Jawaharlal Nehru University, New-Delhi, India.
Moschovis, G. (2010). Public spending allocation, fiscal performance and corruption. Economic Papers, 29(1), 64–79. https://doi.org/10.1111/j.1759-3441.2010.00048.x
Mosley, P. & Chiripanhura, B. (2016). The African political business cycle: Varieties of experience. Journal of Development Studies 52 (7), 917-932. https://doi.org/10.1080/00220388.2015.1113263
Nayab, H. (2015). The relationship between budget deficit and economic growth of Pakistan. Journal of Economics and Sustainable Development 6, 85–90.
Navaratnam, R. and Mayandy, K. (2016). Causal nexus between fiscal deficit and economic growth: Empirical evidence from South Asia. International Journal for Innovation Education and Research 4(8), 1-20. https://doi.org/10.31686/ijier.vol4.iss8.575
Neuman, R., & Ssozi, J. (2016). Political influence on fiscal and monetary policy in Sub-Saharan Africa. Journal of African Economies 25(1), 55-109.
Nordhaus, W. (1975). The political business cycle. Review of Economic Studies 42, 169-90. https://doi.org/10.2307/2296528
North, D. C. (1990a). Institutions, institutional change, and economic performance. Cambridge University Press, Cambridge.
North D. C. (2005b). Institutions and the performance of economics over time. In: Me´nard C, Shirley MM (eds) Handbook of new institutional economics. Springer, Dordrecht, 21–30. https://doi.org/10.1007/0-387-25092-1_2
Obinyeluaku, M. I. (2006). Testing the fiscal theory of price level in Nigeria, University of KwaZulu-Natal Discussion Papers Series No. 58.
Odhiambo, S. O., Momanyi, O., Othuon, L., & Fredrick, O. A. (2013). The relationship between fiscal deficits and economic growth in Kenya: An empirical investigation. Greener Journal of Social Sciences 3, 306–23. https://doi.org/10.15580/GJSS.2013.6.051113603
Onye, K U., & Okon, J.U. (2017). Fiscal policy and monetary integration in WAMZ. An AERC Thematic Paper, WPS.
Persson, T., & Tabellini, G. E. (2003). “Do electoral cycles differ across political systems?” IGIER Working Paper No. 232: 1-19. https://doi.org/10.2139/ssrn.392643
Persson, T., Tabellini, G. E. (1990). Macroeconomic policy, credibility and politics. New York: Harwood Academic Publishers. University of Notre Dame Press.
Potrafke, N. (2010). The growth of public health expenditures in OECD countries: Do government ideology and electoral motives matter? Journal of Health Economics 29, 797–810. https://doi.org/10.1016/j.jhealeco.2010.07.008
Rana, E. A., & Wahid, A. N. M. (2016). Fiscal deficit and economic growth in Bangladesh: A time-series analysis. The American Economist 62, 31–42. https://doi.org/10.1177/0569434516672778
Rogoff, K. (1990). "Equilibrium political budget cycles," American Economic Review 80, 21-36.
Rogoff, K., & Sibert, A. (1988). Elections and macroeconomic policy cycles. The Review of Economic Studies 55, 1-16. https://doi.org/10.2307/2297526
Roodman, D. (2009). “How to do xtabond2: An introduction to difference and system GMM in Stata.” The Stata Journal 9(1), 86-136. https://doi.org/10.1177/1536867X0900900106
Shi, M and Svensson, J. (2002). 'Conditional Political Budget Cycles'. London, Centre for Economic Policy Research.
https://cepr.org/active/publications/discussion_papers/dp.php?dpno=3352
Sucharita, S. & Sethi, N. (2012). Fiscal discipline in India. Romanian Journal of Fiscal Policy 2(1), 1-23.
Alesina, A. G., & Tabellini. (1990). “A positive theory of fiscal deficits and government debt. Review of Economic Studies 57(3), 403-414. https://doi.org/10.2307/2298021
Tujula, M., & Wolswijk, G. (2007). What determines fiscal balances? An empirical investigation in determinants of changes in OECD countries. European Working Paper Series 1, 22-45.
Udoh, E., Joshua, N., & Etok, E. A. (2012). Political regime type, liberalization and fiscal deficits in developing countries: Evidence from Nigeria. European Scientific Journal 8(1), 22-38.
Van de Walle, N. (2003). Presidentialism and Clientelism in Africa’s Emerging Party Systems. The Journal of Modern African Studies 41(2), 297–321. https://doi.org/10.1017/S0022278X03004269
Vicente, C. P. (2014). Is vote buying effective? Evidence from a field experiment in West Africa. Economic Journal 124 (574), 356–387. https://doi.org/10.1111/ecoj.12086
Wyplosz, C., & Kostrup, S. (2010). “A common pool theory of supranational deficit ceilings”. Journal of Development Economics 73(1), 125-154.
Yaru, M.A., Mobolaji, H. I., Kilishi, A.A., & Yakubu, A.T. (2014). Budgetary institutions and fiscal discipline in Nigeria. Annual Conference of the Nigerian Economic Society.