Explaining Africa's public consumption procyclicality: Revisiting old evidence

Abstract

This paper compiles a novel data set of time-varying measures of government-consumption cyclicality for a panel of 46 African economies between 1960 and 2014. Government consumption has, generally, been highly procyclical over time in this group of countries. However, sample averages hide serious heterogeneity across countries with the majority of them showing procyclical behaviour despite some positive signs of graduation from the “procyclicality trap” in a few cases. By means of weighted least squares regressions, we find that more developed African economies tend to have a smaller degree of government-consumption procyclicality. Countries with higher social fragmentation, and those that are more reliant on foreign aid inflows, tend to have a more procyclical government-consumption policy. Better governance promotes countercyclical-fiscal policy while increased democracy dampens it. Finally, some fiscal rules are important in curbing the procyclical behaviour of government consumption.