FISCAL POLICY ASYMMETRIES AND ECONOMIC PERFORMANCE IN SELECTED ECOWAS ECONOMIES

Abstract

This study investigates the asymmetric impacts of government revenue and expenditure on the Economic Performance Index (EPI) in six selected ECOWAS countries. Utilising annual panel data, the study employs a Panel Nonlinear Autoregressive Distributed Lag (P-NARDL) model estimated via the Pooled Mean Group (PMG) framework to capture structural nonlinearities. Panel unit root tests validate the P-NARDL methodology, revealing a mixed order of integration. The empirical results confirm a stable long-run cointegrating relationship among the variables, with a robust group-wide speed of adjustment (ECT = -0.6762, p < 0.01). Long-run estimations show that both positive and negative innovations in government revenue exert a statistically significant, negative impact on economic performance, proving that distortionary tax hikes and capacity-limiting revenue shortfalls are equally detrimental to growth. Conversely, government expenditure exhibits a positive relationship with the EPI: positive expenditure shocks significantly enhance the index (p < 0.05), while negative expenditure shocks also lift the index by signalling fiscal optimisation through the contraction of wasteful recurrent outlays. Formal Wald tests confirm the presence of statistically significant long-run and joint structural asymmetries, though short-run dynamics remain symmetric. The study concludes that the macroeconomic transmission of fiscal policy depends fundamentally on the structural quality of revenue mobilisation and the operational efficiency of public spending, rather than the mere volume of fiscal operations. Policy implication: Broaden tax base, not rates. Prioritize capital spending and cut recurrent waste.