ASYMMETRIC IMPACT OF GOVERNMENT SPENDING BEHAVIOUR ON NATIONAL INCOME AND UNEMPLOYMENT IN AFRICA

Abstract

This study examines the impact of government spending behaviour on growth of national income and unemployment in Africa. The study used a sample of 40 countries covering from 1970 to 2017. Dynamic panel models were employed and the result of Hausman test showed that Pooled Mean Group (PMG) estimator is preferred for the National Income Model and Unemployment model. The study found that increasing government spending has strong positive influence on growth of national income and negative influence on unemployment among African countries while reduction in government spending has significant negative influence on growth of national income and significant positive influence on unemployment of the countries. However, the positive changes in government spending of African countries has stronger influence on growth of income and employment than reductions in the government spending. This implies that government intervention in Africa is crucial for making available huge investments that could spur growth in income and creation of employment. The study recommends increasing government spending that could accelerate economic growth and create employment opportunities. This is because, private investors are seen incapable of making massive investments that could bring out higher growth of national income and employment. The study also recommends powerful fiscal instrument such as progressive tax system that could bring about an equitable distribution of income and wealth.