Research Article | | Peer-Reviewed

The Interaction Between Fiscal Decentralization and Institutional Quality Could Serve as an Alternative to Reducing Public Debt in Central Africa

Received: 10 April 2024     Accepted: 30 April 2024     Published: 24 May 2024
Views:       Downloads:
Abstract

The Central Africa region is encountering significant economic challenges, particularly regarding public debt management. High public debt in Central Africa may hinder governments' ability to invest in development projects and deliver essential services to the population. Therefore, it is important to explore how the interplay between fiscal decentralization and institutional quality can provide an effective solution for reducing public debt. Futhermore, Central African countries face significant difficulties in managing public debt, often exacerbated by corruption. This study examines whether the quality of institutions is the channel through which fiscal decentralization leads to the reduction of public debt in Central Africa. This study analyzes the impact of fiscal decentralization on public debt in Central Africa, with emphasis on the role of corruption. Using various econometric methods, including fixed effects, Driscoll and Kraay, the analysis reveals that fiscal decentralization helps reduce public debt in Central Africa. However, the positive impact of fiscal decentralization on public debt depends on a lower level of corruption. These results are robust as the use of GMM in system and the 2SLS approach of Lewbel have led to the same conclusions. These conclusions highlight the importance of the quality of institutions in the process of improving budgetary discipline, with a view to strengthening the beneficial effects of fiscal decentralization on public debt. This study suggests that anti-corruption institutions in Central Africa constitute the keystone for promoting fiscal decentralization and reducing public debt effectively.

Published in Journal of World Economic Research (Volume 13, Issue 1)
DOI 10.11648/j.jwer.20241301.13
Page(s) 24-32
Creative Commons

This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.

Copyright

Copyright © The Author(s), 2024. Published by Science Publishing Group

Keywords

Fiscal Decentralization, Public Debt, Quality of Institutions

References
[1] World Bank (2020). Africa's Pulse, No. 22, Fall 2020: An Analysis of Issues Shaping Africa's Economic Future. Washington, DC: World Bank.
[2] IMF (2021). Regional Economic Outlook: Sub-Saharan Africa. Washington, DC: International Monetary Fund.
[3] Fosu, A. K. (2015). Growth, inequality, and poverty reduction in developing countries: Recent global evidence. Research in Economics, 69(4), 785-819.
[4] Olowu, D. (2004). Decentralization and local governance in Africa: An overview. Commonwealth & Comparative Politics, 42(1), 29-48.
[5] World Bank. (2018). World Development Indicators: Poverty and Equity. The World Bank.
[6] Wildasin, D. E. (2004). Fiscal federalism and intergovernmentalism transfers in developing countries. World Bank Policy Research Working Paper, (3269), 1-52.
[7] Bahl, R. W., & Bird, R. M. (2018). Fiscal Decentralization, Public Debt, and Local Public Services in Sub-Saharan Africa. In: Decentralization and Governance in Sub-Saharan Africa, edited by F. Ndulu and SD Mwanga, 337-362. Springer.
[8] MFI. (2020). Regional economic outlook: Sub-Saharan Africa. International Monetary Fund.
[9] Faguet, JP (2014). Fiscal Decentralization and Redistribution: Do Formal Institutions Matter? World Development, 42(3), 445-465.
[10] Shah, A. (2007). Decentralization, Fiscal Federalism and Public Expenditure in Developing Countries. Public Budgeting & Financial Management, 22(2), 119-138.
[11] Rodden, J. (2003). Fiscal Discipline and Fiscal Federalism. International Organization, 57(2), 263-291.
[12] Arce, J. L., Layer, P. W., Macías, J. L., Morales-Casique, E., García-Palomo, A., Jiménez-Domínguez, F. J.,... & Vásquez-Serrano, A. (2019). Geology and stratigraphy of the Mexico basin (Mexico city), central Trans-Mexican volcanic Belt. Journal of Maps, 15(2), 320-332.
[13] Eycke, H., Rodriguez, T., & Wibbels, E. (2017). Fiscal Decentralization and Public Debt: Evidence from 100 Developing Countries. World Development, 101, 1056-1073.
[14] Rodden, J., Eskeland, G., & Litvack, B. (2020). Fiscal Decentralization and Public Debt: Evidence and Accessible Data. In: The Oxford Handbook of International Politics Economy, Vol. 1, 211-231. Oxford University Press.
[15] Arce, JL, Eguizábal, JI, Moreno, D., & Nicuesa, SL (2017). Fiscal federalism and public debt: Evidence from disaggregated data. Journal of Public Economics, 172, 12-35.
[16] Blancard, S., & Boussemart, JP (2019). Fiscal decentralization, public debt and economics growth: A panel data analysis of European countries. Regional Studies, 53(7), 989-1001.
[17] Martinez- Vazquez, J., & Timofeev, A. (2018). Decentralization and public debt: A story of overhang and reduction. International Center for Public Policy Working Paper Series, Andrew Young School of Policy Studies, Georgia State University.
[18] Ebel, R. D., & Yilmaz, S. (2019). Decentralization and local government borrowing in Turkey. Public Budgeting & Finance, 39(4), 3-25.
[19] Afonso, A., Soguel, N., & Yilmaz, S. (2020). Fiscal Decentralization and Public Debt: Evidence from Spanish Local Governments. International Center for Public Policy Working Paper Series, Andrew Young School of Policy Studies, Georgia State University.
[20] Wibbels, E. (2006). Fiscal decentralization and the quality of government: Evidence from developing countries. In: Fiscal Decentralization in Developing Countries: Institutions and Governance, edited by RW Bahl and RM Bird, 227-254. Springer.
[21] World Bank, World Development Indicators
[22] International Monetary Fund, International Financial Statistics and World Economic Outlook Database
[23] Osei-Assibey, E. (2014). Decentralization and fiscal performance in Ghana. International Journal of Public Administration, 37(11), 717-724.
[24] Fau, J. (2017). Economic integration and development in Central Africa: what obstacles, what levers? International Studies, 48(3), 453-473.
[25] Nkurunziza, A., & Tapsoba, I. (2018). Economic reforms in Central Africa: assessment and prospects. Contemporary Africa, 254(4), 25-45.
[26] Tchetche, D. M. (2015). Taxation and development in Central Africa: cases of Cameroon, Gabon, Congo and Chad. Cameroonian Economic Review, 10(2), 69-95.
[27] Massimo, C., & Petit, P. (2019). Fiscal decentralization and sub -national governments ' debt: evidence from African countries. Journal of African Business, 20(2), 219-235.
[28] Nkurunziza, A., & Tapsoba, I. (2019). Public debt management and fiscal governance in Africa: the case of Burkina Faso, Cameroon, and Rwanda. Quarterly Journal of Finance and Accounting, 10(2), 20-43.
[29] Lewbel, A. (2012). Instrumental variables estimates of endogeneity, heterogeneity, and treatment effects in non- experimental panel data. Stata Journal, 12(1), 12-25.
[30] Jones, A. M. (2016). A dynamic panel data approach to understanding fertility transitions. The Stata Journal, 16(1), 142-166.
[31] Belotti, F., Forni, C., & Pinto, A. (2018). Endogenous Dynamic Factor Models: with an Application to the G7 Business Cycle. Journal of Econometrics, 202(1), 1-21.
[32] Driscoll, J. C., & Kraay, A. C. (1998). Consistent covariance matrix estimation with spatially dependent data. Review of Economics and Statistics, 80(1), 54-62.
[33] Hsiao, C. (2014). Causality and Co- integration in Panels: Estimation, Inference, and Testing. Journal of economics literature, 52(4), 1148-1156.
[34] Pesaran, M. H., & Yamagata, T. (2008). Inference from panel data with multiple unit -specific tests for cross- sectional dependence. Journal of Econometrics, 143(1), 166-184.
[35] Baltagi, B. H. (2013). Econometric Analysis of Panel Data (5th ed.). John Wiley & Sons.
[36] Paris School of Mines (2004). The challenges of decentralization in Central Africa. The news of ideas.
[37] Jutting, J. (2003). The Economics of Decentralization: A World Bank Policy Research Report. World Bank.
[38] Kambou, L. (2016). Fiscal decentralization and the reduction of public debt in West Africa: What impact on economic policy and good governance? *Developing Worlds*, 174(2), 35-54.
[39] Olken, B. A. (2007). Monitoring corruption: Evidence from a field experiment in Indonesia. The Quarterly Journal of Economics, 122(2), 675-710.
[40] Olken, B. A., & Pande, R. (2011). Can peer pressure reduce corruption in developing countries? The World Bank Economic Review, 25(2), 230-247.
Cite This Article
  • APA Style

    Chrétien, N. T. J., Georges, W., Aimé, K. M., Emmanuel, F. J. (2024). The Interaction Between Fiscal Decentralization and Institutional Quality Could Serve as an Alternative to Reducing Public Debt in Central Africa. Journal of World Economic Research, 13(1), 24-32. https://doi.org/10.11648/j.jwer.20241301.13

    Copy | Download

    ACS Style

    Chrétien, N. T. J.; Georges, W.; Aimé, K. M.; Emmanuel, F. J. The Interaction Between Fiscal Decentralization and Institutional Quality Could Serve as an Alternative to Reducing Public Debt in Central Africa. J. World Econ. Res. 2024, 13(1), 24-32. doi: 10.11648/j.jwer.20241301.13

    Copy | Download

    AMA Style

    Chrétien NTJ, Georges W, Aimé KM, Emmanuel FJ. The Interaction Between Fiscal Decentralization and Institutional Quality Could Serve as an Alternative to Reducing Public Debt in Central Africa. J World Econ Res. 2024;13(1):24-32. doi: 10.11648/j.jwer.20241301.13

    Copy | Download

  • @article{10.11648/j.jwer.20241301.13,
      author = {Nzomo Tcheunta Joseph Chrétien and Wandji Georges and Kenfack Martial Aimé and Fantcho Joseph Emmanuel},
      title = {The Interaction Between Fiscal Decentralization and Institutional Quality Could Serve as an Alternative to Reducing Public Debt in Central Africa
    },
      journal = {Journal of World Economic Research},
      volume = {13},
      number = {1},
      pages = {24-32},
      doi = {10.11648/j.jwer.20241301.13},
      url = {https://doi.org/10.11648/j.jwer.20241301.13},
      eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.jwer.20241301.13},
      abstract = {The Central Africa region is encountering significant economic challenges, particularly regarding public debt management. High public debt in Central Africa may hinder governments' ability to invest in development projects and deliver essential services to the population. Therefore, it is important to explore how the interplay between fiscal decentralization and institutional quality can provide an effective solution for reducing public debt. Futhermore, Central African countries face significant difficulties in managing public debt, often exacerbated by corruption. This study examines whether the quality of institutions is the channel through which fiscal decentralization leads to the reduction of public debt in Central Africa. This study analyzes the impact of fiscal decentralization on public debt in Central Africa, with emphasis on the role of corruption. Using various econometric methods, including fixed effects, Driscoll and Kraay, the analysis reveals that fiscal decentralization helps reduce public debt in Central Africa. However, the positive impact of fiscal decentralization on public debt depends on a lower level of corruption. These results are robust as the use of GMM in system and the 2SLS approach of Lewbel have led to the same conclusions. These conclusions highlight the importance of the quality of institutions in the process of improving budgetary discipline, with a view to strengthening the beneficial effects of fiscal decentralization on public debt. This study suggests that anti-corruption institutions in Central Africa constitute the keystone for promoting fiscal decentralization and reducing public debt effectively.
    },
     year = {2024}
    }
    

    Copy | Download

  • TY  - JOUR
    T1  - The Interaction Between Fiscal Decentralization and Institutional Quality Could Serve as an Alternative to Reducing Public Debt in Central Africa
    
    AU  - Nzomo Tcheunta Joseph Chrétien
    AU  - Wandji Georges
    AU  - Kenfack Martial Aimé
    AU  - Fantcho Joseph Emmanuel
    Y1  - 2024/05/24
    PY  - 2024
    N1  - https://doi.org/10.11648/j.jwer.20241301.13
    DO  - 10.11648/j.jwer.20241301.13
    T2  - Journal of World Economic Research
    JF  - Journal of World Economic Research
    JO  - Journal of World Economic Research
    SP  - 24
    EP  - 32
    PB  - Science Publishing Group
    SN  - 2328-7748
    UR  - https://doi.org/10.11648/j.jwer.20241301.13
    AB  - The Central Africa region is encountering significant economic challenges, particularly regarding public debt management. High public debt in Central Africa may hinder governments' ability to invest in development projects and deliver essential services to the population. Therefore, it is important to explore how the interplay between fiscal decentralization and institutional quality can provide an effective solution for reducing public debt. Futhermore, Central African countries face significant difficulties in managing public debt, often exacerbated by corruption. This study examines whether the quality of institutions is the channel through which fiscal decentralization leads to the reduction of public debt in Central Africa. This study analyzes the impact of fiscal decentralization on public debt in Central Africa, with emphasis on the role of corruption. Using various econometric methods, including fixed effects, Driscoll and Kraay, the analysis reveals that fiscal decentralization helps reduce public debt in Central Africa. However, the positive impact of fiscal decentralization on public debt depends on a lower level of corruption. These results are robust as the use of GMM in system and the 2SLS approach of Lewbel have led to the same conclusions. These conclusions highlight the importance of the quality of institutions in the process of improving budgetary discipline, with a view to strengthening the beneficial effects of fiscal decentralization on public debt. This study suggests that anti-corruption institutions in Central Africa constitute the keystone for promoting fiscal decentralization and reducing public debt effectively.
    
    VL  - 13
    IS  - 1
    ER  - 

    Copy | Download

Author Information
  • Faculty of Economics and Management of Dschang University, University of Dschang, Dschang, Cameroon

  • Faculty of Economics and Management of Dschang University, University of Dschang, Dschang, Cameroon

  • Faculty of Economics and Management of Dschang University, University of Dschang, Dschang, Cameroon

  • Responsible for Teaching, Economic Sciences of Montain University, Montain University, Bangangté, Cameroun

  • Sections