The effects of fiscal governance on fiscal performance in Sub‐Saharan Africa

Abstract

AbstractFiscal governance implemented around the globe offer useful information on the potential viable reasons for its increasing dependence and their implication for fiscal performance. This paper investigates the effects of fiscal governance in explaining the fiscal performance of countries in Africa. The paper uses a panel data of 43 countries from worldwide databases spanning from 1985 to 2011. The random effects model approach is used to analyse the data based on the diagnostic tests. Additionally, the panel corrected standard errors and Hausmann and Taylor estimation models are used to test the robustness of our results to further correct for possible errors and endogeneity in the regressors. The empirical analysis shows that fiscal policy rules and institutions have statistically significant effect on fiscal performance. The results from all the methods indicate higher coefficients of the expenditure rule relative to the other rules. This trend suggests the suitability of the adoption of the expenditure rule within the Sub‐Saharan African environment. This could be partly explained by the fact that, the restrictions placed on expenditures with the aim of controlling excessive spending behaviours of fiscal authorities have been very successful in influencing fiscal deficits in Sub‐Saharan Africa. This study contributes to the literature on the implication of the adoption of fiscal governance in African countries. The policy message to stakeholders is that, fiscal governance should be further strengthened to improve fiscal performance.