Back Matter
  • 1 https://isni.org/isni/0000000404811396, International Monetary Fund
  • | 2 https://isni.org/isni/0000000404811396, International Monetary Fund

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The research underlying this paper was initiated in the context of the preparation of IMF’s October 2017 Regional Economic Outlook for Sub-Saharan Africa. We would like to thank Monique Newiak who contributed to this project in its early stages, and Abebe Aemro Selassie, David Robinson, and IMF colleagues for helpful comments and suggestions. The usual disclaimer applies.

1

Standard errors depend on the variances and covariance of the interacted terms and are described by sd(YC)=Var(βh)+Var(μh)×(St)2+2×Cov(βh,μh)×((St)

2

In fact, the region has substantial potential for an increase in revenues. As shown in Chapter 2 of IMF (2017), the average sub-Saharan African country could increase its tax-to-GDP ratio by 3½ to 5 percentage points—and the potential is larger in oil exporters, which could raise the tax-to-GDP ratio by as much as 8¼ percentage points.

3

The literature on fiscal multipliers has also discussed the effects on fiscal multipliers of the degree of exchange rate flexibility, the level of public debt, and the degree of openness of the economy (Ilzetzki, Mendoza and Vegh 2013; Batini and others 2014; Mineshima, Poplawski-Ribeiro, and Weber 2014). We expand on this discussion below in the context of fiscal consolidations.

4

These estimates, however, are based on a reduced sample due to the limited availability of tax revenue forecasts in the WEO database.

5

These results are robust to alternative definitions of fiscal consolidation episodes, as discussed in the robustness section.

6

For a sample of 15 advanced economies which tend to have larger tax ratios, IMF 2010 finds that tax-based consolidations are more contractionary than spending-based adjustments. Similarly, for a sample of advanced economies, and using a nonlinear estimation, Dell’Erba, Koloskova, and Poplawski-Ribeiro 2014 find that over the medium-term expenditure-based fiscal consolidations are less contractionary than revenue-based consolidations during normal periods of economic growth and not statistically different from each other in the case of prolonged recessions.

7

Some related literature discusses a tradeoff between consolidation and growth, in effect slowing the accumulation of debt to control its possible negative effect on growth, on the one hand, and the risk that consolidation may slow down growth, on the other. For example, DeLong and Summers 2012f suggest that fiscal consolidation and austerity may be self-defeating if they cause short-term reductions in growth to become permanent through negative hysteresis effects on trend output.

The Impact of Fiscal Consolidations on Growth in Sub-Saharan Africa
Author: Francisco Arizala, Mr. Jesus R Gonzalez-Garcia, Mr. Charalambos G Tsangarides, and Mustafa Yenice