Fiscal Policy Effectiveness through the Lenses Useful of Government Consumption

Abstract

Abstract The fiscal policy literature on sub-Sahara Africa (SSA) has predominantly focused on the direction and size of the impact of a specific fiscal policy instrument— i.e., government consumption, investment and/or taxes— on output. Moreover, the literature has disproportionately given attention to understanding the degree of productivity of public investment spending and its impact on real GDP through the crowding-in of private investment. In contrast, less attention has been given to the usefulness of government consumption and how it impacts output via the crowding-in or crowding-out of private consumption in SSA countries. In this chapter, we review the logic of useful public consumption in the context of Edgeworth substitutability/complementarity between public and private consumption and why it matters for fiscal policy effectiveness in Cameroon. We then present some empirical evidence of Edgeworth substitutability of government consumption based on a permanent income theory of consumption. This naturally leads to the examination of the implication of this empirical evidence of useful government consumption and its implication for fiscal policy design and effectiveness in Cameroon.