Fiscal policy, external debt sustainability, and economic growth: Theory and empirical evidence for selected sub-Saharan African countries

This dissertation compiles three papers extending the ongoing discussion about the medium, to long-term impact of fiscal policy on economic growth. In Chapter I, I examine the overall production structure of the Sub-Saharan African economy, and spell out some specific productivity and growth enhancing macroeconomic policies. An econometric investigation of the role of resource endowment and fiscal policy on economic growth is conducted for two Sub-Saharan African countries. In Chapter II, I present a framework under which I can analyze the long run effects of government expenditures in general, and in particular how public expenditure composition affects economic growth in the specific case of a closed economy. The model is solved, calibrated, and some optimality conditions are derived, explaining how, by shifting the composition of government expenditures on (i) education and health, (ii) public infrastructure investment, (iii) transfers payments, (iv) public consumption, and (v) foreign transfer, one can affect the long term growth of per capita income and other macroeconomic variables. In Chapter III, I extend the analytical model developed in Chapter II to an open economy, where the government has the ability to borrow from international financial markets. The model is specified in such a way that government uses received foreign aid, lump sum taxes on income, and foreign borrowing to finance expenditure on health, education, public infrastructure, and the functioning of public administration. I draw some policy implications after numeric calibration. I then conduct a test for debt sustainability to evaluate the feasibility of the policy prescriptions advocated by the model, by applying it to Botswana and Mauritius, and draw some policy implications