Abstract:
The study examined the role of fiscal and monetary policies in the
effects of public debt on private consumption in Ghana using time series data
from 1983 to 2021. Estimating the long and short-term relationships between
public debt and private consumption, as well as determining the optimum
threshold level of public debt on private consumption, the Autoregressive
Distributed Lag (ARDL) model and the Threshold Regression approaches
were used. The findings of the study indicate that there is a negative
relationship between public debt and private consumption in both the short
and long run. The study also found that, in the presence of direct taxes,
indirect taxes, public debt significantly reduces private consumption in the
short run. Also, public debt has an insignificant effect on private consumption
below a threshold level of 4.836%, but beyond this level, it causes a
significant reduction in private consumption. The study, therefore,
recommends that the government cut down wasteful expenditures, maintains
manageable levels of public debt, diversify its sources of income. Future
research could analyze government policies' effectiveness in managing public
debt levels and their impact on private consumption in Ghana.
