The Nexuses between Tax Revenue, Inflation, Private Final Consumption and Economic Growth in Ethiopia: Co-Integrated Var Approach

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Addis Ababa University


Despite the belief that fiscal policy can influence both economic growth and private investment., attempts like the Structural Adjustment Program and Poverty Reduction Strategic Papers have not yet brought that much promising results in Sub- Saharan Africa. If so, Can policy makers help enhance the performance of private investment in the region through fiscal policy changes? In an attempt to answer this question, annual panel data for the period 1986- 2003 for twenty three countries in the region was utilized. The data set depicted the persistence of heterogeneity among the countries. The fixed effects model was applied based on the specification tests. The regression output indicated that private investment is positively responsive to previous period fiscal policy measures, per capita GDP and its growth rate. However, current period fiscal policy measures, domestic credit to the private sector, real exchange rate, inflation, and the size of government control in the exchange rate market appeared insignificant in affecting private investment in the region. Debt servicing significantly and negatively discouraged private investment, while debt stock was not found doing so. The conclusion is that previous period policy measures are more influential in promoting private investment in Sub Saharan Africa. A high debt servicing reduces resource availability for domestic investment immediately than huge external debt stock, whose repayment may be cancelled, at least based on conditions, as observed in HIPCs case. Key words: - Fiscal policy, panel estimates, private investment, Sub- Saharan Africa



Fiscal policy, Panel estimates, Private investment, Sub- Saharan Africa