The effectiveness of fiscal policy in DR congo: Spending and taxing for macroeconomic impact

This paper investigates the effectiveness of fiscal policy in the Democratic Republic of Congo (DRC), focusing on its impact on GDP, aggregate demand, private consumption, and investment. Employing a medium-scale dynamic stochastic general equilibrium (DSGE) model with Bayesian estimation, the study accounts for the distinct dynamics of Ricardian and non-Ricardian households within the DRC’s socio- economic context. The results indicate that public investment expenditures significantly enhance GDP and household consumption, while current expenditures often fail to stimulate aggregate demand due to
corruption and inefficiencies. Conversely, tax reductions are shown to positively influence macroeconomic variables, underlining their importance in fiscal policy design. The findings highlight the critical role of well-targeted fiscal strategies in promoting economic stability and growth in developing economies. Policy recommendations emphasize prioritizing public investment, implem...