Fiscal Sustainability in West Africa, the Role of Governance Online First

Abstract

This study investigates the determinants of fiscal sustainability in West Africa, with a particular focus on the role of governance. Using annual data from 14 West African economies, the analysis employs panel econometric techniques, including Fixed Effects (FE), Driscoll–Kraay FE, and Instrumental Variable Fixed Effects (IV-FE) estimators to address heteroskedasticity, cross-sectional dependence, and potential endogeneity among fiscal and institutional variables. Across all panels, the debt-to-GDP ratio remains the core indicator of fiscal sustainability, while governance is decomposed into political stability, government effectiveness, regulatory quality, rule of law, and control of corruption. Panel results reveal that in the baseline FE model, debt-to-GDP exerts a significant negative effect on fiscal sustainability, confirming that rising public debt worsens fiscal stability in West Africa. The Driscoll–Kraay estimator strengthens these results by correcting for cross-sectional dependence. The IV-FE panels further demonstrate that governance variables, particularly government effectiveness, regulatory quality, and control of corruption significantly improve fiscal sustainability when endogeneity is addressed. Political stability shows mixed effects across panels, while the lag structure confirms a persistent fiscal adjustment path. The findings highlight that sustainable public finance in West Africa depends not only on prudent debt management but also on strengthening i

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