The role of democracy in fiscal space creation in Africa

This study scientifically analysed the effect of democracy on fiscal space in Africa. While previous studies have explored the impact of political economy on fiscal space through governance quality, this study uniquely examines the role of democracy in availing fiscal space within Africa, providing fresh evidence. Using the Panel Corrected Standard Errors (PCSE) regression model, this study examines data from 32 African countries between 1998 and 2023. De facto fiscal space was used as the dependent variable. Findings reveal that improvements in electoral, liberal, deliberative, participatory, and egalitarian democracy promote fiscal space availability, with participatory democracy providing the greatest impact. Gross domestic product growth rate and foreign direct investment are other variables that also play a pivotal role in availing fiscal space in African countries. The results also suggest that democracy moderates the effect of governance quality on fiscal space. Interestingly, the findings reveal that, except for liberal democracy, the transition from an undemocratic to a democratic regime in Africa constrains the creation of fiscal space. This suggests transitional opportunity costs associated with a shift in power dynamics. Our findings confirm the assertions of the polyarchy and PBC theories of democracy on fiscal space. The research concludes that democracy is crucial for fiscal space creation in Africa. Deepening democracy in Africa can lead to the creation of fiscal space, a critical component for economic development.