Fiscal policy in African development: ‘qual-quant’ analysis with special reference to Zambia

This thesis focuses on some of the most urgent and consequential issues in fiscal policy and development in Africa, with special reference to Zambia. In Chapter 2, the main research problem is how to get developing income countries out of the debilitating problem of low tax – low public expenditure low – development. We find possible merits in the ‘fiscal contract’ approach – suggesting that higher tax revenues can be achieved by improving accountability and offering better value for money in public expenditure. However, apparently the adoption of the value-added tax has not had a significant impact in spite of being regarded as the most significant innovation in tax policy design of the past millennium, whereas the establishment of ARAs has only had a contemporaneous positive effect, which on our analysis, dissipates over the medium term. In Chapter 3, we seek to understand whether investment in human capital, including public spending on education, is effective in promoting economic growth as suggested by ‘endogenous growth theory’. We also consider new issues in human capital accumulation, in particular ‘quality’ versus ‘quantity. We find strong evidence that the ‘quality’ (measured by repeater rates), rather than the ‘quantity’ (school enrolments) plays a major role and that policies of the past decades which have stressed ‘quantity’ may have undermined quality, and therefore, growth – a scepticism shared by the 2018 World Development Report. Our study also finds some evidence that institutions of governance matter for growth, but we find no evidence that different levels of public spending on education are differentially productive, contrary to assertions by World Bank (1986) and others. Chapter 4 brings together the revenue and expenditure dimensions of fiscal policy, to consider why fiscal deficits are becoming difficult to manage and control, especially in Africa. The evidence indicates that Africa’s democratisation has expressed itself in increasingly weak government ability to control fiscal deficits because in most African ‘political business cycles’ the pre-election fiscal boost is not counterbalanced by the post-election cutback. The ability to control fiscal deficits, especially in natural resource-dependent countries, has been compounded by government’s inability to effectively tax powerful resource corporations and poor management of 2 resources through wasteful spending, particularly on uneconomic and unsustainable programmes. On the international scene, fiscal discipline is being further compromised by the erosion of the restraining influence of the IMF and aid donors, because low-income countries can now finance deficits using loans obtained from China and other sources and manage to postpone critical fiscal adjustments.