Fiscal Consolidation and Asymmetric Macroeconomic Effects: Evidence from Sub Saharan African Countries
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Date
2026
Authors
Oluwasola E. Omoju
Ruth Badru
Andrea Cale
Ayobami E. Ilori
Journal Title
Journal ISSN
Volume Title
Publisher
AERC
Abstract
This study investigates the macroeconomic implications of fiscal
consolidation in Sub-Saharan Africa (SSA) using an annual dataset from 1995
to 2019 for 37 countries in the region. Employing the local projection
approach, we analyze the short- and medium-term effects of fiscal
consolidation on output and debt reduction. Our findings reveal that fiscal
consolidation measures exert an expansionary effect on output, and the debt
reduction effect reaches its peak after three years. Notably, heavily indebted
poor countries exhibit a more pronounced response to fiscal consolidation,
while the impact is independent of resource endowment levels. During
economic upturns, the debt reduction effect is rapid but transitory.
Conversely, during downturns, the effect is gradual, more substantial, and
persistent. Furthermore, we find that expenditure-based and revenue-based
consolidation have similar effects on debt and output during expansionary
phases. However, during recessions, their effects differ considerably. Overall,
our findings indicate that expenditure-based fiscal consolidation enhances
fiscal sustainability but may come at the cost of reduced consumption welfare.
Moreover, prioritizing expenditure-based fiscal consolidation offers a
promising pathway for enhancing fiscal sustainability in the region. These
findings offer important implications for policymakers seeking to address the
challenges of public finance and debt distress in SSA.