Tortuous road toward countercyclical fiscal policy: Lessons from democratized sub-Saharan Africa

Many African countries experienced significant political transformations in the early 1990s, moving from one-party systems to multipartite regimes. In line with the literature that links policy choices to political regimes, the paper explores the implications of such changes on the cyclical properties of fiscal policy. The paper uncovers a positive association between democratic institutions and countercyclical fiscal policies in a panel of African countries. More importantly, formal institutions that impose restraints on the executive branch are found to be the key factor that explains why democracies can better smooth business cycles than autocracies.