Fiscal policy burden accruing from public debt accumulation: theoretical effect on growth and empirical evidence

Edo, Samson; Oigiangbe, Osaro

doi:10.3326/pse.49.1.5.

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Fiscal policy burden accruing from public debt accumulation: theoretical effect on growth and empirical evidence

Samson Edo*

Samson Edo

Affiliation: Department of Economics, University of Benin, Benin City, Nigeria

0000-0002-8238-8576

Correspondence
samsonedo@gmail.com

Osaro Oigiangbe*

Osaro Oigiangbe

Affiliation: Department of Economics, University of Benin, Benin City, Nigeria

0009-0009-3580-6972

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https://doi.org/10.3326/pse.49.1.5

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Fiscal policy burden accruing from public debt accumulation: theoretical effect on growth and empirical evidence

Samson Edo, Osaro Oigiangbe

https://doi.org/10.3326/pse.49.1.5 | Published online: March 10, 2025

Table 1
List of eligible Sub-Saharan African countries

Angola	Djibouti	Madagascar	Sierra Leone
Benin	Equatorial Guinea	Malawi	Somalia
Botswana	Eswatini*	Mali	South Africa
Burkina Faso	Eritrea	Mauritania*	South Sudan*
Burundi	Ethiopia	Mauritius	Sudan
Cameroon	Gabon	Mozambique	Tanzania
Cape Verde	Gambia	Namibia	Togo
Central African Rep.	Ghana	Niger	Uganda
Chad	Guinea	Nigeria	Zambia
Comoros	Guinea-Bissau*	Rwanda	Zimbabwe
Congo DRC	Kenya	Sao Tome & Principe
Congo Rep.	Lesotho	Senegal
Cote d’Ivoire	Liberia*	Seychelles

*Not included in study sample due to lack of complete data.

Source: World Bank Open database.

Table 2
Descriptive statistics of data

Sample size = 45 countries
Estimation period = 1990-2022
Observations = 1,485
	Statistic
Variable	Mean	Median	Max.	Min.	Std. dev.	Skewness (Pearson coefficient)	Kurtosis	Jarque-Bera test
EG	3.3	2.87	6.1	-2.1	4.3	0.55	3.9	0.16
FT	56.1	55.3	78.6	31.2	23.7	0.59	4.6	0.22
FD	42.3	40.1	60.4	26.6	17.1	0.61	3.7	0.09
PC	23.2	22.5	25.5	17.3	4.7	0.56	3.2	0.18
HC	61.4	60.4	68.3	52.1	8.2	0.53	2.5	0.11
TR	33.9	42.3	59.7	27.5	19.4	0.34	2.8	0.14
PG	2.6	2.5	2.9	2.2	0.33	0.52	4.9	0.27

Source: Authors’ computer estimation.

Table 3
Panel unit root test results

Sample size: 45 countries
Estimation period: 1990-2022
Unit root test
Variable	Level			First difference
Variable	LLC	IPS	HD	LLC	IPS	HD
EG	3.14*	2.88*	1.31*	-	-	-
FT	1.23	1.03	2.99	2.64*	3.22*	1.34*
FD	1.16	1.09	2.74	2.57*	2.83*	1.19*
PC	1.11	1.07	3.03	2.79*	2.44*	1.21*
HC	1.18	1.15	2.87	3.05*	2.58*	1.06*
TR	1.09	1.21	3.11	2.64*	3.01*	1.11*
PG	1.12	1.16	3.06	2.55*	2.39*	1.17*
Critical values: LLC = 2.06, IPS = 1.95, HD = 1.87

*Variable is stationary.

Variables: EG = economic growth, FT = fiscal policy burden from total debt, FD = fiscal policy burden from domestic component of total public debt, PC = physical capital, HC = human capital, TR = trade, PG = population growth.

Note: LLC = Levin-Lin-Chu test, IPS = Im-Pesaran-Shin test, HD = Hadri test. In LLC and IPS, larger statistics indicate more stationary variables. In HD, smaller statistics indicate more stationary variables.

Source: Authors’ computer estimation.

Table 4
Estimation results (GMM)

Dependent variable	Explanatory variable
EG	FT	FD	PC	HC	TR	PG	EG_-1	EG_-2
	-0.61* (-3.17)	-0.52* (-2.13)	0.64* (3.33)	0.56* (2.28)	0.50* (2.13)	-0.34 (-1.02)	0.49* (2.04)	0.47* (1.99)
	Diagnostic test
	Pearson chi-square test for goodness of fit (critical p-value = 0.05)			Sargan test (0.05 ˂ p ≤ 1)		A-B 1^st order correlation test (0 ˂ p ˂ 0.1)	A-B 2^nd order correlation test (0.25 ˂ p ≤ 1)	Akaike (AIC)
	2.01 (0.019)			6.92 (0.38)		2.32 (0.07)	1.24 (0.36)	12.06 (Minimum)

* Significant at 5%, t-values in parenthesis. In diagnostic test p-values are in parenthesis. A-B stands for Arellano-Bond.

Variables: EG = economic growth, FT = fiscal policy burden from total debt, FD = fiscal policy burden from component of total public debt, PC = physical capital, HC = human capital, TR = trade, PG = population growth, EG-1 and EG-2 = lagged dependent variables (instrumental variables).

Source: Authors’ computer estimation.

Table 5
GMM estimation results (robustness check)

Dependent variable: EG
Independent variable	FD excluded		FT excluded
Independent variable	Coefficient	t-value	Coefficient	t-value
Intercept	2.11	8.73	1.94	1.99
FT	-0.57*	2.31	–	–
FD	–	–	-0.39*	2.17
PC	0.60*	3.11	0.58*	2.86
HC	0.51*	2.31	0.46*	2.19
TR	0.43*	2.08	0.50*	2.28
PG	-0.24	0.97	-0.27	1.07
EG_-1	0.40*	2.01	0.38*	2.12
EG_-2	0.46*	2.22	0.41*	2.09
Sargan test	3.03		2.56
(0.05 ˂ p ≤ 1)	(0.29)		(0.41)

*Significant at the 5% level.

Source: Authors’ computer estimation.

Table 6
Estimation results (ARDL)

Dependent variable	Explanatory variable	MG estimator			PMG estimator
Dependent variable	Explanatory variable	Coefficient	t-value	Long-run multiplier coefficient	Coefficient	t-statistic	Long-run multiplier coefficient
EG	Intercept	1.52	5.02	-	2.07	5.07	-
	EG_-1	0.44*	1.97	-	0.51*	2.11	-
	FT	-0.59*	-2.76	-2.43	-0.53*	-2.11	-2.13
	FD	-0.55*	-2.53	-2.22	-0.50*	-2.06	-2.00
	PC	0.66*	3.29	2.94	0.60*	3.02	2.50
	HC	0.58*	2.72	2.38	0.54*	2.21	2.16
	TR	0.49*	1.99	1.96	0.56*	2.42	2.27
	PG	-0.29	-1.01	-1.40	-0.31	-1.04	-1.44
Wald test		3.92			4.33
(Critical p-value = 0.05)		(0.009)			(0.006)
Hausman test (H₀ = PMG, H₁ = MG): t-statistic = 0.89, p-value = 0.13 (critical p-value = 0.05).

* Significant at 5 %.

Source: Authors’ computer estimation.

Table 7
Maximum likelihood structural stability estimates

Endogenous variable: EG
Exogenous variable	Total period (1990-2022)		Sub-period 1 (1990-2007)		Sub-period 2 (2008-2022)
Exogenous variable	Coefficient	Asymptotic t-statistic	Coefficient	Asymptotic t-statistic	Coefficient	Asymptotic t-statistic
Intercept	0.28	1.18	0.32	1.20	0.30	1.15
FT	0.23	1.06	0.26	1.13	0.24	1.08
FD	0.24	1.08	0.25	1.12	0.21	1.01
PC	0.30	1.16	0.31	1.17	0.22	1.06
HC	0.29	1.14	0.29	1.19	0.32	1.20
TR	0.31	1.19	0.27	1.15	0.29	1.18
PG	0.25	1.11	0.30	1.16	0.27	1.16
EG_-1	0.27	1.16	0.28	1.14	0.31	1.19

Variables: EG = economic growth, FT = fiscal policy burden from total debt, FD = fiscal policy burden from domestic debt, PC = physical capital, HC = human capital, TR = trade, PG = population growth, EG-1 = lagged dependent variable.

Table 8
Maximum likelihood reliability estimates

Alternative break point	Structural break parameter estimate		Normalized bias statistic	Standard deviation (SD)	Root mean square error (RMSE)
Alternative break point	Rho 1	Rho 2	Normalized bias statistic	Standard deviation (SD)	Root mean square error (RMSE)
1997	0.05	0.06	0.31	0.15	0.22
1998	0.07	0.04	0.29	0.13	0.25
1999	0.06	0.05	0.32	0.11	0.27
2000	0.09	0.10	0.30	0.16	0.23
2001	0.08	0.07	0.34	0.14	0.20
2002	0.05	0.09	0.33	0.10	0.21
2003	0.11	0.08	0.36	0.12	0.24