Research Article
Open Access
Fiscal Policy and Income Distribution in West Africa: Does Governance Quality Matter?
Abstract
This study examines fiscal policy and income distribution in West Africa with due consideration to governance quality in the West African region. The independent variables were government revenue, government expenditure, fiscal borrowing, governance quality indicators while income inequality index (Gini coefficient) was the dependent variable. Data were sourced from World Bank Development Indicator for 14 countries in West Africa for the period 2000 through 2025. The data were analyzed using Panel random effect least square regression. The results showed that governance quality has profound effect on fiscal policy operation in West African countries. Given the presence of governance quality indicators as control variables, government revenue soared and decreased income inequality. Government expenditure and borrowing increased income inequality in West African economies. The research concluded that West African governments’ expenditure is concentrated on one particular segment of the population and is not evenly spread thus leading to uneven income distribution. It was recommended that government expenditure and revenue should be evenly spread with transparency in order to ensure expansionary monetary policy and an even income distribution.
Keywords
Fiscal policy, gini coefficient, governance quality, income distribution, West Africa
References
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Afolabi, J. O. (2019). The impact of governance on economic development in West Africa: A System GMM Dynamic Panel Approach, Economica, 15(3): 217-231
African Development Bank (2023). West Africa Economic Outlook 2023: Mobilizing Private Sector Financing for Climate and Green Growth.
Alesina, A. & Ardagna, S. (1998). Tales of fiscal adjustment. Economic Policy, 13(27): 488- 545.
Aniemeke, T. & Mgbomene, C. (2025). Government revenue generation and expenditure: The Nigerian experience, https://scholar.google.com/citations?view_op=view_citation&hl=en&user=Vqms4SoAAAAJ&cstart=20&pagesize=80&citation_for_view=Vqms4SoAAAAJ:LkGwnXOMwfcC , 1-16
Aslan, O. (2022), Determinants of fiscal space: an empirical analysis for OECD Countries, Hacettepe University Graduate School of Social Sciences.
Baltagi, B. H. (2001). Econometric analysis of panel data, 2nd ed. New York: John Wiley and Sons.
Easterly, W.; Ritzen, J. & Woolcock, M. (2006). Social cohesion, institutions, and growth. Economics & Politics, 18(2): 103-120
Effiong, U. E., Udofia, L. E., & Garba, I. H. (2023). Governance and economic development in West Africa: linking governance with economic misery. Path of Science, 9(6), 2009-2025.
Ekouala-Makala, U. (2022). An empirical study of public debt sustainability based on fiscal fatigue and fiscal space in CEMAC countries, International Studies of Economics, 17(3): 334-370, doi: 10.1002/ise3.7.
Emara, N. & Chiu, I. (2016). The impact of governance on economic growth: the case of Middle Eastern and Northern African countries. Topics in Middle Eastern and African Economics, 18(1): 126-144
Fatoba, I. & Otonne, A. (2024). The effect of fiscal policy shocks on income inequality and household poverty reduction: evidence from Nigeria, African Journal of Economic Review, 12(4): 58-75
Fisman, R. & Svensson, J. (2007). Are corruption and taxation really harmful to growth? Firm level evidence. Journal of Development Economics, 83(1): 63–75.
Josifidis, K., Supić, N. & Beker-Pucar, E. (2017). Institutional quality and income inequality in the advanced countries. Panoeconomicus, 64(2): 169-188.
Katuka, B., Mudzingiri, C., & Ozili, P. K. (2023). Fiscal space, governance quality, and inclusive growth: Evidence from Africa, Journal of Financial Economic Policy, 16(1): 80-101
Kaufmann, D.; Kraay, A. & Mastruzzi, M. (2010). The worldwide governance indicators: a summary of methodology, data and analytical issues. World Bank Policy Research Working Paper, no. 5430.
Kraay, A., Kaufmann, D. & Mastruzzi, M. (2010). The worldwide governance indicators: methodology and analytical issues, The World Bank (Policy Research Working Papers), doi: 10.1596/1813-9450-5430.
Kunawotor, M. E., Bokpin, G. A., & Barnor, C. (2020). Drivers of income inequality in Africa: Does institutional quality matter? Africa Development Review, 32:718–729
Law, C.H. & Soon, S.V. (2020). The impact of inflation on income inequality: the role of institutional quality. Applied Economics Letters, 27(21)
Levin, A. Lin, C.F., and Chu, C.S.J. (2002). Unit root tests in panel data: asymptotic and finite-sample properties. Journal of Econometrics, 108, 1-24.
Lewis, M. (2006). Governance and corruption in public health care system. Paper 78. Washington DC: Center for Global Development.
Malla, M. H. & Pairote, P. (2022). Fiscal policy and income inequality: the critical role of institutional capacity. Economies 10: 115. https://doi.org/10.3390/ economies10050115
Mgbomene, C. (2025). The Effects of Unemployment, Poverty and Food Insecurity on Life Expectancy in Nigeria: A Dynamic Analysis Using ARDL, International Journal of Multidisciplinary Research and Growth Evaluation, 6(2), 680-686
Mohammed, F. & Sanusi, S. (2020). Quality of governance and tax revenue generation in West Africa: a political process theory perspective, Management & Accounting Review, 19(1): 11-23
Nguyen, V. B. (2023). From fiscal policy to income inequality in advanced economies: does institutional quality hinder? Romanian Journal of Economic Forecasting, 26(1): 165-185
Odusola, A. (2020). Fiscal policy, redistribution and inequality in Africa, in: Income Inequality Trends in sub-Saharan Africa: Divergence, determinants and consequences, 155-175
Olowofeso, O., John-Sowe, M., Kargbo, S., Bawa, S., Mendy, I., Adams, K., Adeleke, A. & Cham, Y. (2021). Fiscal convergence in the West African Monetary Zone, West African Monetary Institute, Occasional Paper Series No. 22
Onatunji, O. (2025). Revisiting the fiscal policy–income inequality nexus in Sub-Saharan Africa: does institutional quality matter? Managerial and Decision Economics, 46:3172–3188
Onye, K. & Umoh, O. (2021). Fiscal policy and monetary integration in the ECOWAS, African Economic Research Consortium, Policy Brief No.762: 1-18
Oxfam (2016). An Economy for the 1%: How privilege and power in the economy drive extreme inequality and how this can be stopped. 210 Oxfam Briefing Paper, January 2016.
Pedroni, P. (2000). Critical values for cointegration tests in heterogeneous panels with multiple regressors. Oxford Bulletin of Economics and Statistics 61, 653-670
Pesaran, M. H. (2004). General diagnostic tests for cross section dependence in panels. Cambridge Working papers in Economics 0435 RePec
Salman, R. T., Sanni, P., Olaniyi, T. & Yahaya, K. (2022). Governance transparency of tax revenue performance in West Africa, Business Ethics and Leadership, 6(1): 14-24
Sadorsky, P. (2014). The effect of urbanization on CO2 emissions in emerging economies, Energy Economics, 41:147-153.
The United Nations (2024). Transforming Our World: The 2030 Agenda for Sustainable Development. New York