Heterogeneous government consumption and investment multipliers in low-income Sub-Saharan Africa

This paper estimates government consumption and investment multipliers for 18 low-income Sub-Saharan African (SSA) countries. We employ a Bayesian random effect panel vector autoregressive model, where a hierarchical approach allows the degree of heterogeneity in the coefficients to be determined within the inference procedure. This framework avoids imposing homogeneous slope restrictions and allows for country-specific estimates of fiscal multipliers. Findings show substantial heterogeneity across countries, with formal tests indicating that investment multipliers are often larger than consumption multipliers with high probability. An exploratory analysis of the relationship between multipliers and a set of potential determinants highlights the role of labour market slack, trade openness, and GDP per capita, while debt-to-GDP and informality emerge as additional determinants specific to investment multipliers.