Do National Numerical Fiscal Rules really shape fiscal behaviours in developing countries? A treatment effect evaluation

This paper analyses the effect of National Numerical Fiscal Rules (FRs) upon fiscal discipline in 74 developing countries over the period 1990–2007. It is the first study that assesses the impact of FRs on budgetary outcomes while controlling for the self-selection problem. It finds that the effect of FRs on structural fiscal balance is significantly positive, robust to a variety of alternative specifications, and varies with the type of FRs. It also finds that the treatment effect differs according to countries' characteristics: number of FRs, time length since FRs adoption, presence of supranational FRs, government fractionalisation and government stability.     

Rising BRIC and Changes in Sub‐Saharan Africa's Business Cycle Patterns

This paper assesses the extent to which Sub‐Saharan Africa (SSA)'s business cycle is synchronized with that of the rest of the world (RoW). SSA's business cycle has not only moved in the same direction as that of the RoW, but has also gradually drifted away from the G7 in favor of the BRIC. Trade with the BRIC has been the strongest driver of this shift. As fiscal policy stances in SSA and the BRIC are not synchronized, they have not caused output correlation. Also, financial openness, which is at an early stage in SSA, has acted as a neutral force.     

Volatility widens inequality. Could aid and remittances help?

Review of World Economics - We analyse the relationship between income volatility and inequality and the conditional role played by aid and remittances. Using a panel of 142 countries for the...     

Trade Intensity and Business Cycle Synchronicity in Africa

Abstract: Business cycle synchronicity, which is the key requirement for sharing a common currency, is not particularly strong within the prospective African monetary unions. However, this parameter is not irrevocably fixed and may be endogeneous vis‐à‐vis the integration process. For example, trade may increase the similarity of economic disturbances. This paper tests such an effect among the 53 African countries from 1965 to 2004. The estimated results suggest that trade intensity increases the synchronization of business cycles in the African context. The magnitude of the ‘endogeneity effect’ is, however, smaller than similar estimates among industrial countries.     

Aid and Income Stabilization

The potential stabilization of output shocks through official assistance flows is investigated is this paper. It contributes to the current debate on aid instability and argues that official assistance might cope with exogenous output shocks in recipient countries and stabilize resources available for national expenditure, including consumption and investment. High aid dependency and vulnerability to output shocks positively affect the stabilization property of aid. Contrasting with the current literature, the paper documents that aid volatility is not a significant determinant of the stabilizing or destabilizing impact of aid.     

Structural shifts in aid dependency and fiscal policy in developing countries

Foreign aid is a sizable source of government financing for several developing countries and its allocation matters for the conduct of fiscal policy. This article revisits the fiscal effects of shifts in aid dependency in 59 developing countries from 1960 to 2010. It identifies structural shifts in aid dependency and uses treatment effect methods to assess the fiscal effects of aid. It finds that shifts in aid dependency are frequent and have significant fiscal effects in developing countries. In addition to the traditional evidences of tax and investment displacement and ‘aid illusion,’ we show that upward shifts and downward shifts in aid dependency have asymmetric effects on fiscal accounts in developing countries. Large aid inflows undermine tax capacity and public investment while large reductions in aid inflows tend to keep recipients’ fiscal behaviour intact. Moreover, the tax displacement effect tends to be temporary while the impacts on expenditure items tend to last. Finally, we find that the undesirable fiscal effects of aid are more pronounced in countries with low governance score and low absorptive capacity.