DOES FISCAL DEFICIT MATTER FOR PRIVATE CONSUMPTION EXPENDITURE? PANEL EVIDENCE FROM SELECTED WEST AFRICAN COUNTRIES
James Tumba Henry
Volume 14 Issue 1
Abstract
The study examines the impact of fiscal deficit on private consumption expenditure in eight selected West African countries (Ghana, Gambia, Nigeria, Sierra Leone, Burkina Faso, Cote d’Ivoire, Senegal and Guinea-Bissau) from 1991 to 2022. Using the panel Autoregressive Distributed Lag pool mean group (ARDL-PMG) for the joint dynamic and country-specific effects and the Dumitrescu-Hurlin causality test for robustness check, the study addresses a crucial gap concerning cross-sectional dependence and slope homogeneity in the region. The empirical results indicate that, for the full sample, fiscal deficit and government consumption expenditure exert a positive and significant joint impact on private consumption in the long and short runs, aligning with the Keynesian multiplier and permanent-income hypotheses. However, country-specific outcomes reveal profound heterogeneity: countries such as Ghana, Sierra Leone, Côte d’Ivoire, and Senegal show positive consumption responses to fiscal deficits while Nigeria exhibits a significant crowding-out effect, and Burkina Faso demonstrates an insignificant response. In addition, inflation unexpectedly raises consumption in the short run, suggesting a survival instinct where households deplete asset holdings to afford basic necessities. Based on these findings, West African countries should restructure deficit financing towards productive capital investments to reverse crowd-out effects of fiscal deficit, harmonize fiscal policy across the Anglophone and Francophone blocs, and implement targeted, non-inflationary social safety nets to cushion adverse welfare impact of macroeconomic instability. Keywords: ARDL-PMG, Consumption Expenditure, ECOWAS, Fiscal Deficit, West Africa.
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