Fiscal consolidation and asymmetric macroeconomic effects: Evidence from Sub-Saharan African countries

Abstract

This paper examines the macroeconomic effects of fiscal consolidation in Sub-Saharan Africa (SSA), addressing the region's rising debt levels and constrained fiscal space. Existing literature has explored fiscal policy's cyclical behaviour and structural constraints; however, gaps remain in understanding the heterogeneous effects of consolidation across debt levels, economic phases, and country classifications. Using the local projection approach on annual data from 1995 to 2022 for a panel of 37 SSA countries, we find that fiscal consolidation has an expansionary effect on output while reducing the debt-to-GDP ratio, with stronger impacts in highly indebted, resource-rich, and institutionally weak economies. Furthermore, expenditure-based adjustments outperform revenue-based measures, particularly during recessions, where effects are deep but short-lived, compared to milder but persistent impacts during expansions. These findings offer new insights into how debt levels and resource endowments shape fiscal outcomes, guiding targeted, context-sensitive strategies to balance growth and debt sustainability in SSA.