Fiscal policy and economic growth nexus in SADC countries: a spatial econometric approach

Abstract

This study pursued an empirical investigation on the nexus between fiscal policy and economic growth in SADC countries with special reference to spatial analysis. Econometric approach employed in the study is based on the data spanning from 2000-2017 considering twelve countries in the SADC region. The study uses both the traditional and spatial econometric approaches to map channels through which fiscal variables affect economic growth considering individual countries and the region as a whole. The empirical evidence from the country-level analysis is mixed but substantial across economies. The Toda and Yamamoto causality followed for individual countries supports the adoption of different hypotheses to address fiscal variables. However, the panel causality test proposed by Dumitrescu and Hurlin (2012) suggested the use of the tax-spend hypothesis. The investigation of spillover effects through the spatial modelling suggested that tax revenue in the region negatively affected other contiguous countries due to spatial interaction. The recommendations were that the countries should adopt tax harmonization policies and that tax revenues and government spending decisions should be reconciled. Boosting economic growth for the region remains vital since it influences the evolution of debt levels.