POLICY DIALOGUES Fiscal Consolidation in Sub-Saharan Africa: Unequal Effects on Children’s Health March 2021 – No. 31 | UE-AFD Research Facility on Inequalities PITCH
institutions. In light of the recent public
including few developing countries
New research reveals that policies of
debt expansion of many African countries, improvements in collecting
(Woo et al, 2017)1. These studies suggest that income inequality is
taxes and rationalizing public spending have featured among the
worsened by fiscal austerity measures, notably those based on
top recommendations of various World Bank reports and regional
spending cuts (Agnello and Sousa, 2014)2. Other studies have focused on
economic outlooks from the International Monetary Fund.
the effects of public finance policies like debt reduction on infant mortality
Governments in sub-Saharan Africa have been urged to monitor their
measured at the individual level but without exploring their distributional
public balance more carefully, and
impact (Welander, 2016)3.
fiscal consolidation (public spending cuts and/or tax rises) in sub-Saharan African countries are, on average, associated with higher infant mortality: the estimated contribution of ‘austerity’ measures is around 7 per 1,000 additional infant deaths compared with births that occur outside periods of fiscal consolidation. Fiscal consolidation disproportionatel y affects the births of mothers from the poorer parts of the population, as well as those of middleclass mothers. The differential effects for the poorest mothers are mainly driven by fiscal consolidation based on spending cuts. For middle-class mothers, additional deaths occur pre dominantly when austerity is conducted through tax hikes only or jointly
with
reductions
in
public
spending. MOTIVATION The importance of stabilizing the public finances of sub-Saharan African countries has recently been reassessed by the Bretton Woods
ultimately to reduce deficits.
Fiscal consolidation is expected to
But with reducing inequality of all kinds a priority of the international
have substantial consequences for health conditions and infant mortality.
community, there are understandable concerns that such
Episodes of fiscal austerity are likely to be associated with spending cuts,
fiscal consolidation may have the opposite effect. This study examines
which might have a negative effect on the quantity and/or quality of
the effects of fiscal consolidation episodes in sub-Saharan Africa over
public services such as free health centers and hospitals. Tax-based
the period from 1975 to 2015 on infant mortality. The researchers also
consolidation could also affect child mortality through reductions in
examine the effects according to the quartile of the wealth distribution to
households' net disposable income and resulting difficulties in paying
which mothers belong.
maternity-related spending.
Thus, the focus here is on health
Both of these effects are expected to
inequality inequality.
rather than income The effects of fiscal
vary with respect to individuals' position in the income distribution
consolidation on income inequality have been widely investigated at the
and according to the instruments used to reduce public deficits: taxes
country
rises, spending cuts, or both.
Authors Lisa CHAUVET, Hélène EHRHART, Marin FERRY
level
and
for
samples
Key words Fiscal consolidation, health inequality, child mortality
Geography Sub-Saharan Africa
Themes Economics – Public finance
Find out more about this project: https://www.afd.fr/en/understanding-role-taxation-fight-against-inequalities
METHODS The study measures infant mortality using a combination of all the Demographic and Health Surveys available in 2019 for the African continent. The dataset comprises more than two million children from 35 African countries. The dependent variable in the analysis is a dummy variable equal to one if the child died before the age of one. The estimations control for the birth order position of the child and a dummy equal to one for boys. They also include mother fixed effects.
primary deficit over GDP as the predicted value of the primary deficit
mothers in the population. This average positive effect of fiscal
(World Economic Outlook database) estimated on both deterministic and
consolidation on infant mortality is mainly driven by spending cuts
stochastic trends.
rather than tax hikes only.
RESULTS First, there is a positive correlation between fiscal consolidation and infant mortality: there are, on average, 6 to 7 per 1,000 additional deaths under the age of one when babies are born in a time of fiscal
consolidations or those based on
various wealth quartiles. Based on information on durable goods and
occurred in the birth year of the child, or the year before. The researchers
living conditions, the researchers develop a proxy for households’
follow the definition of Alesina and Ardagna (2012)4 where a fiscal
wealth and calculate to which quartile they belong. The children's
consolidation is observed in a two (respectively, three or more) year
quartiles at birth are approximated using the mothers’ quartiles at the
period in which the cyclically adjusted primary balance over GDP
time of the survey.
the
cyclically adjusted
birth dates. For middle-class mothers, the effect of primary deficit
Next, the study distinguishes the
measured at the country level and is equal to one if a fiscal consolidation
construct
cuts, which reduce the quality or the provision of public services around
reduction on child deaths mainly stems from revenue-based
The explanatory variable of interest is
two (respectively, three) points of the balance-to-GDP ratio. They first
mothers: poor households are likely to be more sensitive to spending
austerity. effects of fiscal consolidation on infant mortality for households in
improves in each year and the cumulative improvement is at least
This is particularly true for the poorest
The results suggest that the poorest and middle-class mothers experience more infant deaths when they give birth in times of fiscal austerity compared with the richest
both tax hikes and spending cuts. This differentiated effect between middle-class and poorest mothers can be explained by the predominance of informality in the poorest households, which leads them to avoid taxation more easily and spares them from tax adjustments. Conversely, middleclass mothers are more likely to belong to households where incomes stem from official activities, leading to a subsequent reduction in net income and in the financing of healthcare-related private spending.
RECOMMENDATIONS
When launching fiscal austerity measures, governments should be conscious of their potential human costs, notably in the poorest parts of the population.
In poor countries with no safety nets, spending cuts should make a priority of targeting areas of expenditure that do not seek to ease the situation of the poorest people. Tax increases should make a priority of targeting the richest parts of the population.
Woo, J., Bova, E., Kinda, T., and Zhang, Y. S. (2017). Distributional Consequences of Fiscal Adjustments: What Do the Data Say? IMF Economic Review, 65(2):273–307. 1
Agnello, L. and Sousa, R. M. (2014). How Does Fiscal Consolidation Impact on Income Inequality? Review of Income and Wealth, 60(4):702–726. 2
3
Welander, A. C. C. (2016). Does debt relief improve child health? Evidence from cross-country micro data. Policy Research Working
Paper Series 7872, The World Bank. Alesina, A. F. and Ardagna, S. (2012). The design of fiscal adjustments. NBER Working Papers 18423, National Bureau of Economic Research, Inc. 4
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