Explaining Procyclical Fiscal Policy in African Countries

Abstract

Simple time series regressions for 37 low-income African countries during 1960–2004 suggest that government consumption is highly procyclical, with consumption responding more than proportionately to fluctuations in output in many cases. The results from a cross-country specification suggest that government consumption is more procyclical in those African countries that are more reliant on foreign aid inflows and that are less corrupt, and that it is less procyclical in countries with unequal income distribution and that are more democratic. These results contrast with those from recent research using data sets that comprise a more diverse groups of countries in terms of geography and income levels.