Cyclicality of social spending in west African countries: evidence from Ghana and Nigeria

Abstract

This study investigates the behaviour of government social spending in two West African economies of Ghana and Nigeria. It seeks to discover if government spending in health and education is procyclical, acyclical or counter-cyclical. Findings show that government spending in this sector in the short run is mixed but predominantly counter-cyclical. In the long run, however, government social spending is procyclical, increasing as output growth increases. We also document the inapplicability of the Armey Curve for the two countries, as results show that the squared term of social expenditure is an increasing function of output growth. A significant policy implication of these is that when government is cutting down on its outlays in periods of economic booms to stabilize growth, it should do this without compromising on quality. In particular, while government cuts down on education, for instance, it should not cut down on health expenditure because it would be damaging for growth stability. Furthermore, since procyclical tendencies of developing countries may be attributable to weak institutions and corruption, government must possess the political will to fight institutional graft by building durable processes and systems that would outlive any administration.

Keywords: Procyclicality, Fiscal Policy, Social Spending, Health, Education, Ghana, Nigeria