Public Investment and Fiscal Sustainability in the West African Economic and Monetary Union (WAEMU): Lessons for European and Middle Eastern and North African Countries

Public Investment and Fiscal Sustainability in the West African Economic and Monetary Union (WAEMU): Lessons for European and Middle Eastern and North African Countries

Mehmet Serkan Tosun, Serdar Yılmaz
Copyright: © 2016 |Pages: 16
DOI: 10.4018/978-1-5225-0053-7.ch005
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Abstract

In this chapter we analyze fiscal adjustments following economic shocks in the West African Monetary Union (WAEMU) countries. Using an unbalanced panel data, we examine empirically 81 developing countries including eight WAEMU countries over the 1980-2012 period. We compare the cyclicality of fiscal policy in WAEMU to other developing countries. While we focus on the response of public investment to changes in GDP, we also examine responses of current public expenditure and fiscal balance. We find that there is strong procyclicality in fiscal policy in WAEMU countries. Procyclicality is strongest in public investment and WAEMU countries are more procyclical in their fiscal policy compared to a group of countries that include European and Middle East and North African (MENA) countries.
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Fiscal Policy And The Business Cycle

The link between business cycles, change in aggregate economic activity through contractions and expansions, and fiscal policy is an important public policy debate that has received increasing attention in recent years. Although, the conventional wisdom is that fiscal policy should be countercyclical,1 a number of studies have presented evidence of procyclicality (Agenor et al., 1999; Gavin et al., 1996; Gavin & Perotti, 1997; Mpatswe et al., 2011; Stein et al., 1999; Talvi & Vegh, 1999).

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