Journal article
Central bank independence, elections and fiscal policy in Africa
International journal of emerging markets, Vol.14(5), pp.809-830
11/22/2019
DOI: 10.1108/IJOEM-08-2018-0423
Abstract
Purpose
The purpose of this paper is to primarily investigate the ability of independent central banks (central bank independence (CBI)) to improve fiscal performances in Africa, accounting for election years, and also to examine whether the effectiveness of CBI in improving fiscal performance is enhanced by higher political institutional quality.
Design/methodology/approach
Using recent CBI data from Garriga (2016) on 48 African countries, 90 other developing countries and 40 developed countries over the period 1970–2012, the authors apply a two stage system GMM with Windmeijer (2005) small sample robust correction estimator to examine the impact of CBI and elections on fiscal policy in Africa, other developing countries and developed countries.
Findings
The authors provide evidence that unlike in other developing countries and developed countries, CBI does not significantly improve fiscal performance in Africa. However, the effectiveness of CBI in improving fiscal performance in Africa is enhanced by higher levels of institutional quality. Although elections directly worsen fiscal performance in Africa, institutional quality enhances CBI’s effect on improving fiscal performance in election years across Africa, other developing countries and developed countries.
Practical implications
The findings of the study are significant as they provide insight into the benefits of having strong institutions to complement independent central banks in order to control fiscal indiscipline in election years.
Originality/value
The study is the first among the studies of CBI-fiscal policy nexus, to measure fiscal policy using net central bank claims on government as a percentage of GDP. In addition to the use of fiscal balance, this study also uses cyclically adjusted fiscal balance as a measure of fiscal policy. This is a critical channel through which independent central banks can constrain government spending. It also compares findings in Africa to other developing countries, noting some differences.
Details
- Title: Subtitle
- Central bank independence, elections and fiscal policy in Africa
- Creators
- Abel Mawuko AgobaJoshua Yindenaba AborKofi OseiJarjisu Sa-AaduBenjamin AmoahGloria Clarissa Odortor Dzeha
- Resource Type
- Journal article
- Publication Details
- International journal of emerging markets, Vol.14(5), pp.809-830
- Publisher
- Emerald Publishing Limited
- DOI
- 10.1108/IJOEM-08-2018-0423
- ISSN
- 1746-8809
- Language
- English
- Date published
- 11/22/2019
- Academic Unit
- Finance
- Record Identifier
- 9984380387402771
Metrics
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