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Budget policy, economic cycle and debt in the West African Economic and Monetary Union (WAEMU) countries: Empirical evidence based on a regime change model

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  • Sèwanoudé Honoré HOUNGBEDJI

    (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.

Suggested Citation

  • Sèwanoudé Honoré HOUNGBEDJI, 2021. "Budget policy, economic cycle and debt in the West African Economic and Monetary Union (WAEMU) countries: Empirical evidence based on a regime change model," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(4(629), W), pages 151-168, Winter.
    • Handle: RePEc:agr:journl:v:4(629):y:2021:i:4(629):p:151-168
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    Keywords

    budget; economic cycle; debt.;
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