Causal Nexus among Fiscal Policy, Economic Growth and Income Inequality in Sub-Saharan African Countries (1995-2016)

Abstract

This paper investigates the causality among fiscal policy, economic growth and income inequality in some twenty six selected sub- African countries with a view to identifying the direction of causation among these variables; thus aiding the identification of policy choice variables whose impact could predict the behaviour of some other variables. This approach would ultimately provide solutions to income inequality and economic growth problems in sub-Saharan African countries. To achieve this objective, the sub-Saharan African countries were divided into three–low income countries, lower middle income countries and upper middle income countries. The methodology of multivariate Granger causality was applied to investigate the causality among fiscal policy, economic growth and income inequality variables. The findings show that in low income countries and lower middle income countries, no designable causality could be established among the three variables probably suggesting lack of effective policy cordination in SSA countries. However, a uni-directional causality running fron economic growth to income inequality was found in upper middle income countries.