Public Finance

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Bank-level analysis of the determinants of lending rate stickiness in Uganda
(African Economic Research Consortium, 2021-07-15) Nampewo, Dorothy
This study determines the existence and drivers of the asymmetrical response of lending rates to policy rate changes in Uganda’s banking sector. Uganda’s banking system seems to be faced with sticky adjustments of lending rates following changes in policy rates. Whereas interbank money-market rates have tended to track the evolution of the policy rate, bank lending rates have been stickier, only responding partially to changes in the policy rate, with lags. These lag periods appear to be longer when the policy rate is reduced than when it is raised, which has created challenges for monetary policy implementation. The analysis is based on bank-level data covering 17 commercial banks for the period 2009–2017. The econometric approach is based on panel error-correction methods. Results show that downward stickiness exists in bank-level lending rates. The factors identified as causing the asymmetrical response of interest rates to policy rates include: risk, cost, bank capability, banking sector concentration and government borrowing. These results provide new insights necessary for the design of appropriate policy measures to reduce high and sticky lending rates in order to, among other things, reduce the cost of finance and ensure effective implementation of monetary policy. In particular, the study recommends policies that improve cost efficiency, reduce government borrowing and support mostly small and indigenous banks to compete and penetrate the market, as well as measures towards minimizing credit risks that could help to achieve symmetric adjustment.
Cameroon’s fiscal policy and economic growth
(The African Economic Research Consortium, 1998-11) Amin, Aloysius Ajab
Cameron has experienced periods of economic growth and decline. During the growth period public expenditures increased the size of the public sector. The decline period, which started in 1986, has been characterized by government expenditures that outstripped revenues. The government's recovery program has meant drastic reduction in public expenditures and desperate efforts to raise revenue. Since the programe started, Cameron's key macroeconomic in dictators of performance have continued to show adverse trends. There are few single country studies relating government budget to growth through private investment. Moreso nothing has bend one on Cameron. This study analyzes the relationship between publican and private investment, stressing the crowding in or crowding out of private investment by public expenditures. Based on secondary data from the public sector, the results of a growth model show that the relevant factors have positive effects on growth while those of the investment model show the crowding in of infrastructures and social sector. The study concludes by recommending the reallocation of more resources to productive sectors and increasing and sustaining of spending on those productive sector for those components of public expenditures that crowd in the private sector.
Consequences and limitations of recent Fiscal Policy in Cote d’Ivoire
(AERC, 1996-11) OUSSOU, KOUASSY; BOUABRE, BOHOUN
N/A
CONSTRAINTS TO THE DEVELOPMENT AND DIVERSIFICATION OF NONTRADITIONAL EXPORTS IN UGANDA, 1981-90
(AERC, 1994-11) SSEMOGERERE, G. N.; KASEKENDE, L. A.
The foreign exchange cash-flow of Uganda has reached a crisis. Expenditure requiring foreign exchange is on the increase as the economy grows, while foreign exchange receipts have dwindled over the past four years from about US$400 million to a cash flow position of about US$100 million. This study investigates the constraints which prevent exports receipts from increasing in response to the exchange rate reforms since 1981. The first conclusion drawn from this study is that exchange rate policies, unless pursued within a consistent macroeconomic stabilization framework, cannot enlist a significant response from exports producers. Second, it is clear that other constraints encompassing institutional reforms and infrastructural reconstruction must also be addressed before a the country can develop a dynamic comparative advantage.
Determinants of a Firm’s Level of Exports: Evidence from Manufacturing Firms in Uganda
(AERC, 2010-05-02) Aggrey Niringiye; Richard Tuyiragize
The aim of this study was to establish why Ugandan manufacturing firms decide to enter the export market. The study built on previous studies by including business environment factors, factor intensity variables and specific firm characteristics in one integrative model to investigate the determinants of level of manufactured exports by firms using tobit and probit estimation procedures. The econometric results showed that higher levels of capital to labour ratio, firm size, Asian ownership, and being an agrobased and chemical firm are the major determinants of propensity to export. The major determinants of propensity to export to Africa region were firm size, capital–labour ratio, skill intensity and being a chemical firm. This compares with firm size and being an agro-based firm for exporting to the Western Europe region. On the determinants of the decision to export or not, firm size, Asian ownership, capital–labour ratio, being an agro–based and chemical firm were the only significant variables. To promote exports, Uganda should design specific incentives to attract new firms to agro-based and chemical sectors such as tax holidays. Strategies should also be designed to grow small firms into large ones, such as loan guarantee schemes for small and medium firms, tax holidays for joint ventures and mergers, etc. In addition, the government should provide incentives for capital imports such as maintaining the current zero rating of capital imports. Finally, policy makers should also design policies aimed at attracting foreign investment such as increasing economic productivity and political confidence
Determinants of Capital Structure of Listed Firms in Kenya and the Impact of Corporate Tax
(African Economic Research consortium, 2016-11-02) Nyang'oro, Owen
Financing is among the important decisions that firms make, not limited to the source, but also the cost of financing. This study looks at the determinants of capital structure of Kenyan firms listed on the Nairobi Securities Exchange (NSE) from 2003 to 2012. The main motivation is to analyse the determinants of capital structure, including corporate tax. Conditional quantile regression is used in analysing the distributional differences of debt ratios across firms in different quantiles. Firm response to tax rate is proxied using average effective tax rate, while controlling for the standard variables that have been established in the literature to determine capital structure. The results show that some of the main variables for capital structure decision are important for capital structure decision. Also, the term structure of debt is important in leverage decisions and depends on the size of the firm, profitability, asset tangibility, and interest cost. Increase in size of the firm leads to firms shifting from long-term to short-term debt, while asset tangibility leads to a shift from short-term to long-term debt by the firm. Profitable firms at higher debt levels will reduce the use of debt in their capital structure. The effect of tax on capital structure is only significant at lower quantiles, and only for total debt ratios.
The distribution of expenditure tax burden before and after tax reform: The case of Cameroon
(AERC, 2006-08-01) Tabi Atemnkeng Johannes; Atabo ngawung Joseph Nju; Afeanyi Azia Theresia
This paper examines the incidence of indirect taxation in Cameroon in 1983, 1996 and 2001. Using household surveys for these three years, the paper looks into which consumption taxes are progressive and determines if changes in tax policy influenced the welfare of the poor. The paper suggests that the incidence of expenditure taxes changes with the changing economic environment and reveals that the indirect tax reforms of 1994 and 1999 have been generally pro-poor. In the aggregate, consumption taxes became more progressive than before, partly due to changing consumption patterns following the introduction of new taxes or replacement of old ones.
Distributional Effects of Ghana’s Value Added Tax Regime
(African Economic Research Consortium, 2021-07-23) Andoh, Francis Kwaw
This paper examines two distributional aspects of Ghana’s Value Added Tax: the distribution of burden and benefits from VAT exemptions across different households, and the changes in prices of consumer goods across different consumption expenditure items. The results show that the VAT regime has evolved from being progressive to regressive. Strikingly, poor households have increased their expenditure on telecommunication, transport, housing and utilities despite the increase in prices. In terms of policy, the study concludes that the current exemptions are not well targeted considering the shifts in expenditure components over time. The government may either abolish them completely or shift the emphasis to reflect the consumption dynamics.
Effects of budget deficits on the current account balance in Nigeria: A simulation exercise
(AERC, 1997-11) Egwaikhide, Festus O
This paper examines the effect of budget deficit on the current account balance in Nigeria, covering the period from 1973 to 1993. This is motivated by the fact that the magnitude of government has increased with amazing rapidity since the early 1 980s. Simultaneously, the current account balance recorded deficits, to the extent that there is a high correspondence between these variables. A macroeconomic model that captures the salient interrelationships between government budgetary developments, credit creation and the current account balance is constructed. Quantitative evidence suggests that budget policy affects the current account balance in Nigeria. In particular, simulation experiments show that budget deficit, engendered by increased expenditure, leads to a deterioration of the current account, whether it is financed through bank credit or external borrowing. It is argued that budget discipline is necessary for the achievement of external balance in Nigeria.
Estimating Ghana's Tax Capacity and Effort
(AERC, 2020-07-29) Insaidoo, William Gabriel Brafu; Obeng, Camara K.
The main objective of the study is to estimate and analyse Ghana’s tax potential and effort and to determine how much more tax the country could generate based on its desired expenditure needs. To achieve this objective, a stochastic tax frontier model has been analysed using annual secondary data, covering the period 1985 to 2014. The analyses indicate that an increase in the taxable base and institutional improvements help to increase Ghana’s optimum tax potential. The study also reveals that political institutional improvement reduces inefficiency in Ghana’s tax system. In addition, the study finds that Ghana has enough of a tax gap to be exploited to meet its rising expenditure needs
External Debt and Economic Growth in Sub-Saharan African Countries: An Econometric Study
(The African Economic Research Consortium, 1999-03) lyoha, Milton A.
This econometric study takes a sumulation approach to investigate the impact of external debt on economic growth in sub-Saharan African countries using a small macroeconometric model estimated for 1970-1994. An important finding was the significance of debt overhang variables in the investment equation, suggesting that mounting external debt depresses investment through both a “disincentive” effect and a “crowding out” effect. Policy simulation was undertaken to investigate the impact of alternative debt stock reduction scenarios (debt reduction packages of 5%, l0%, 20% and 50%), effective in 1986, on investment and economic growth in the subsequent years. It was found that debt stock reduction would have significantly increased investment and growth performance. A 20% debt stock reduction would, on average, have increased investment by 18% and increased GDP growth by 1% during the 1987-1994 period. Thus, the results demonstrate that debt forgiveness could provide a much needed stimulus to investment recovery and economic growth in sub-Saharan Africa.
FISCAL OPERATIONS IN A DEPRESSED ECONOMY: NIGERIA, 1960-90 —
(aerc, 1996-03) EKPO, AKPAN H.; NDEBBIO, JOHN E.
Fiscal federalism remains an important area of study especially in an economy characterized by regional or state organization. The Nigerian economy consists of states. Twenty-one states and the Federal Capital Territory (Abuja) made up the federation until 25 August 1991, when the federal government created additional nine states. Hence, the country now consists of 30 states plus the Federal Capital Territory. However, this study concentrates on the original 21-state structure. The pattern had developed from one with three regions to one with four regions between 1960 and 1966. From 1967 to 1971, the country operated a 12-state structure. A 19-state blueprint, which lasted until September 1987, was created in 1975/76. These reorganizations, though political, have reasonable doses of historical and economic considerations. From the economic sphere, the creation of more states affects an economy's fiscal operations. The nature and type of relationship(s) between the center and the states have to be worked out especially in terms of revenue sharing and expenditure. State fiscal structures have to be developed and fiscal functions of allocation, distribution, and stabilization should be properly monitored in order to ensure growth and development within the economy. The center must ensure that expenditure and revenue patterns in states or regions do not create distortions in the larger economy.
Fiscal operations, Money Supply and Inflation in Tanzania
(AERC, 1997-11) KILINDO, A. A. L.
Not available
Fiscal policy and poverty alleviation: Some policy options for Nigeria
(The African Economic Research Consortium, 2007-02) Obi, Benneth O.
The rise in fiscal policy as a tool of macroeconomic management and the pervasive and widespread inequality in terms of income disparity has renewed interest in the use of fiscal policy in the alleviation of poverty and the reduction of income disparity. This study sets out to examine the potency of fiscal policy as a tool for poverty alleviation. The study uses a static real-side computable general equilibrium model as the framework. Three counterfactual scenarios were examined. These are transfers to the poor household, targeting of government expenditure and import tariff adjustment. The study observed that targeting of government expenditure seems to be the most potent tool for effective poverty reduction. Moreover, tariff adjustment tends to aggravate income disparity/ poverty amongst households. In this light, the study proposes that in the quest for poverty reduction in Nigeria, fiscal policy should be designed so that government expenditure is properly focused to ensure that goods required by poor households are provided through public means.
Ghana: The burden of debt service payment under structural adjustment
(AERC, 1995-03) OSEI, BARFOUR
Abstract not available
Growth and Foreign debt the Ethiopian Experience : 1964- 1986
(AERC, 1992-11) Befekadu Degefe
Growth And Foreign Debt: The Ugandan Experience
(AERC, 1997-11) Mbire, Barbara; Atingi, Michael
This paper analyses Uganda’s external debt problem. Like many other countries in the sub-Saharan Africa, Uganda is a severely indebted low-income country. Uganda’s total debt stock at end June 1993 was estimated at US$2.64 billion, with a debt service ratio of nearly 80%. A look at Uganda’s debt profile since the 1970s reveals a composition of debt mainly from multilateral creditors. The study particularly links debt to economic growth. A major observation is the acute debt servicing obligation of the country, and the fact that a large proportion of Uganda’s debt is not eligible for rescheduling. Debt payments have been a fundamental cause of low economic growth. Of great concern is whether the economy can sustain its current growth rate of 5% per annum and at the same time maintain adequate domestic investment, given the heavy reliance on foreign import capital flows. Debt relief is not enough; continued government commitment to structural reforms and sound debt management are essential. The need to continue the ongoing restructuring of the economy and promote further growth is apparent. But how sustainable and possible is this challenging path without accumulating more debt?
Impact of Institutional Quality on Tax Revenue in Côte d’Ivoire
(African Economic Research Consortium, 2021-11-12) Beyera, Isabelle
Using Gill’s (2000) conceptual framework, the present study is an institutional analysis aimed at explaining the low level of tax revenue in Côte d’Ivoire. It is based on data collected from the DPPSE of the country’s Ministry of Economics and Finance, from the Central Bank of West African States, from the World Bank, and from various institutional reports and semi-structured interviews carried out with the staff of the two tax administration general directorates in Côte d’Ivoire (the DGI and the DGD). The study shows how crucial enhanced institutional quality is for raising tax revenue in Côte d’Ivoire, notably revenue from indirect taxes. Indeed, a low level of institutional quality, coupled with high levels of corruption, has contributed to a poor tax-collection performance, which in turn has hindered the two tax administration general directorates’ work in terms of tax auditing, tax collection, and tax-base assessment. As a result, there have been low levels of tax returns, payment of the key taxes and recovery of tax arrears. In addition, the magnitude of tax exemptions, and of the informal sector, has led to a reduction in the tax base and has created avenues for corruption within the tax administration system
Impact of Public Expenditure on Economic Growth in WAEMU Countries: A Re-Examination
(African Economic Research consortium, 2017-04-04) Ouattara, Wautabouna
Besides fulfilling their state sovereignty responsibilities, governments are increasingly participating in economic growth through the production of goods and services. This is why it is possible to measure a government’s weight in the economy by estimating the share of its expenditure in the gross domestic product (GDP). However, the issue of the effectiveness of government expenditure requires accurate knowledge of economic repercussions, as these have, for a long time, been considered to be destructive to the wealth that usually derives from taxes and borrowing. The aim of this study is thus to reexamine the structure of government spending in the member states of the West African Economic and Monetary Union (WAEMU), and to determine their relative influence on economic growth. The issue of the impact of public expenditure on the level of economic performance is not new. Numerous studies have explored this area of economic analysis. However, the relationship between the specificities of public expenditure and the resultant economic growth is an aspect of this analysis that calls for further research. The distinction between productive and non-productive public expenditure is the cause of the differing levels of economic growth that can be observed in the WAEMU area. Statements of non-productive public expenditure vary significantly from one country to another, depending on each country’s specificities and priorities of the moment. The study attempted to demonstrate that public expenditure in the WAEMU area tends to improve economic growth at a low but still significant level. A comparative analysis of the results shows that public expenditure in countries with characteristics similar to those of the WAEMU countries accounts for economic growth in a more significant way than in the case of other countries, mostly those in the Sahel region. The analysis also shows that too much intervention in the economy from the government increases private sector mistrust, leads to opportunistic behaviour and reduces the marginal efficiency of capital. Finally, the results of this study show that bad governance and the deterioration of the political risk index considerably weaken the economic growth in the WAEMU region.
The Impact of Subregional Integration on Bilateral Trade: The Case of UEMOA
(AERC, 2008-12-27) Akoété Ega Agbodji
The aim of this study was to evaluate the impact of preferential trade agreements and the monetary union on bilateral trade between UEMOA member countries. With the use of a dynamic gravity model, it was possible to realize that membership in a common monetary zone and the implementation of common economic reforms had a significant effect on bilateral trade within the zone, although more in terms of diverting imports and exports than in terms of creating trade. Furthermore, economic policy distortions that foster informal transborder trade had a negative effect on trade within the region.

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