Dissecting the role of democracy on fiscal space creation in Africa

Abstract

This study empirically investigates the extent to which democracy shapes fiscal space in Africa. Although prior scholarship has examined political economy factors, particularly governance quality, in relation to fiscal space, this analysis distinctly isolates democracy’s direct influence and provides context-specific evidence based on 32 African countries. Using a Panel Corrected Standard Errors (PCSE) regression model and data 1998–2023, the study employs de facto fiscal space as the dependent variable. The findings demonstrate that enhancements in electoral, liberal, deliberative, participatory and egalitarian democracy expand fiscal space, with participatory democracy exerting the strongest effect. Economic growth and foreign direct investment also play important roles in supporting fiscal space. Moreover, the results indicate that democracy moderates the impact of governance quality on fiscal space. The analysis further reveals that, except in the case of liberal democracy, transitions from autocratic to democratic regimes tend to constrain fiscal space in the short term, suggesting transitional opportunity costs arising from shifts in political power. Overall, the findings corroborate the predictions of polyarchy theory and political business cycle theory regarding democracy’s role in shaping fiscal space, underscoring the conclusion that deeper democratization is essential for expanding fiscal space and supporting economic development in Africa.