Author:
Kebalo Léleng,Zouri Stéphane
Abstract
This paper estimates a fiscal deficit threshold that maximizes economic growth and is favorable to business cycles synchronization given the compliance of countries. The analysis covers the eight countries that form the West African Economic and Monetary Union (WAEMU) across 1990-2018. Our results show that 11.42% of the Gross Domestic Product (GDP) is the fiscal deficit threshold which should not to be exceeded and that fulfills the aforementioned conditions. Since the debt relief program in 2006, however, this threshold has been reduced from 11% to 3.97%. Therefore, compliance with the key fiscal convergence criterion limiting the fiscal deficit to 3% of the GDP and in force in the Union is pro-growth and favorable to business cycles synchronization. However, even if this convergence criterion seems rigorous for fiscal discipline and can be maintained, it could be adjusted to 4%. The paper discusses the advantages of this proposed adjustment.
Publisher
Center for Economic Integration
Subject
General Economics, Econometrics and Finance