Theoretical and Applied Economics
No. 4 / 2021 (629), Winter
Budget policy, economic cycle and debt in the West African Economic and Monetary Union (WAEMU) countries: Empirical evidence based on a regime change model
University of Abomey-Calavi, Benin
Abstract. In this paper, we study the non-linear effect of the economic cycle and debt on the basic budget balance (BBB) in WAEMU countries over the period 1982-2018. Using a panel model with threshold effects and smooth transition, the hypothesis of non-linearity between the BBB, the economic cycle and debt was verified. The results show that an increase in the debt ratio above a threshold of 66% has a negative effect on the BBB's elasticity relative to the economic cycle in the following period. Moreover, the results show that the dynamics of the BBB adjust the increase in external debt during high economic growth periods. This measure could be strengthen the reach of the stability and growth pact through its BBB as the economic integration lever initiated by WAEMU countries since several decades.
Keywords: budget, economic cycle, debt.
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Empirical evidence based on a regime change model
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