Fiscal Policy and Economic Stabilization Dynamics in Sub-Saharan Africa: A New Evidence from Panel VEC Model and Hodrick-Prescott Filter Cyclical Decomposition

This study investigates the dynamics of fiscal policy and economic stabilization using a panel dataset from Sub-Saharan Africa (SSA) sourced World Development Indicators (WDI) between 1985 2019. The utilized vector error correction model (VECM) rather than autoregression (PVAR) after ascertaining presence cointegrating equations (existence long-run relationships). Also, both homogenous heterogeneous unit root processes were to test data’s stationarity before estimating VECM. Again, cyclical decomposition (Hodrick-Prescott Filter) is adopted in examining effect on across countries SSA. Essentially, VECM estimation result reveals that government expenditure (GEX) total reserves (TRS) have significant relationships but are not substantial enough stimulate growth stability short run. Simultaneously, Hodrick-Prescott Filter’s (HP-filter) confirms non-stability SSA over time. In line with other numerous recommendations, countries’ governments should improve policies targeted toward controlling financial (fiscal) leakages ensure more robust region through increases revenue long-run. JEL Classification Codes: E62, E63, F38, F41, H50.