The Impact of Fiscal Discipline on Job Creation

Abstract

This study investigates the impact of fiscal discipline on job creation in Ghana. Specifically, the study was designed to analyze the interactions between the Washington and Beijing Consensuses and how these economic paradigms have affected fiscal discipline and job creation in Ghana. The study reviewed the theoretical literature on fiscal discipline and job creation in order to place the research in the appropriate theoretical framework. The empirical literature indicates that as a result of the persistent rise in government spending and borrowing, public debt of Ghana has gone up as against low growth of job creation over the past two decades. The study made use of primary and secondary data. In order to collect primary data, questionnaires were administered to 450 respondents to answer questions on the topic. The respondents were selected based on purposive and stratified sampling techniques. To achieve the objectives of this study, primary data was used in the first stage of the analysis using General-to-Specific Econometric Modeling (GETS) to analyze the relationships between fiscal discipline and job creation. To analyze the short run and long run impacts of fiscal discipline on job creation, secondary annual data from 1981 to 2019 was used with the Autoregressive Distributed Lag (ARDL) approach with Error Correction Model were also applied. Further, a Granger Causality test was carried out to examine the causal relationship between fiscal discipline and job creation whilst the Bounds Test was conducted to assess the existence of co-integration. The findings indicate a positive and statistically significant long‐run relationship between fiscal discipline and job creation. Also, in the short run a uni-directional Granger causality relationship exists between fiscal discipline and job creation. It was also found that fiscal indiscipline negatively affects job creation in Ghana in the long run. The study recommends that government should borrow for very high priority projects that could contribute to job creation. It is further recommended that government should put in place measures to ensure strict fiscal discipline by cutting down its expenditure both at the central and local government levels to free up resources to create jobs in the medium to long-term.