Do fiscal rules limit fiscal space?

This paper examines the relationship between fiscal rules and fiscal space in Sub-Saharan African (SSA) economies during 1980–2020. Using cross-country empirical methods, we find that fiscal rules reduce fiscal space, contrary to conventional expectations. We argue that this reflects elevated sovereign risk and persistent debt distress in many developing economies. To explain this result, we develop a small open economy New Keynesian model with sovereign default risk. In the model, higher public debt raises perceived default risk and risk premia, increasing borrowing costs and tightening external financing conditions. Consequently, sustainable debt levels decline, reducing fiscal space.

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Publication Details

Journal
Macroeconomics and Finance in Emerging Market Economies
Published
2026-08-24
DOI
https://doi.org/10.1080/17520843.2026.2720057
Primary Topic
Fiscal Policies and Political Economy
Type
article
Field-Weighted Citation Impact
0.00
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article

Do fiscal rules limit fiscal space?

Lucius Cassim, Bertha Nguluwe, Gift Matabwa
Macroeconomics and Finance in Emerging Market Economies
Fiscal Policies and Political Economy
article

Do fiscal rules limit fiscal space?

Lucius Cassim, Bertha Nguluwe, Gift Matabwa
article en

Abstract

This paper examines the relationship between fiscal rules and fiscal space in Sub-Saharan African (SSA) economies during 1980–2020. Using cross-country empirical methods, we find that fiscal rules reduce fiscal space, contrary to conventional expectations. We argue that this reflects elevated sovereign risk and persistent debt distress in many developing economies. To explain this result, we develop a small open economy New Keynesian model with sovereign default risk. In the model, higher public debt raises perceived default risk and risk premia, increasing borrowing costs and tightening external financing conditions. Consequently, sustainable debt levels decline, reducing fiscal space.

Macroeconomics and Finance in Emerging Market Economies
Deakin University (AU), University of Malawi (MW), National Dong Hwa University (TW)
Partnerships for the goals
Openalex Percentile: Top 5%
Fiscal Policies and Political Economy
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Do fiscal rules limit fiscal space? — Lucius Cassim, Bertha Nguluwe, et al. · Macroeconomics and Finance in Emerging Market Economies (2026) | TGRS Research Map | TGRS