Fiscal Consolidation in Sub-Saharan Africa: Unequal Effects on Children’s Health

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

Publishing Director Rémy Rioux Editor-in-Chief Thomas Melonio

Agence française de développement (AFD) 5, rue Roland Barthes | 75012 PARIS | France

For other publications of the Policy dialogues collection: https://www.afd.fr/en/collection/policy-dialogues

Legal deposit 1st quarter 2021 ISSN in process | © AFD