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Exchange Rate Strategies and Fiscal Performance in Sub-Saharan Africa

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  • Karim Nashashibi

    (International Monetary Fund)

  • Stefania Bazzoni

    (International Monetary Fund)

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    Abstract

    This paper investigates the relationship between fiscal performance and movements in the exchange rates, the terms of trade, and other macroeconomic aggregates in 28 sub-Saharan African countries over the 1980-91 period. It finds that the tax base in most of these countries is heavily dependent on imports and import substitutes. Consequently, an overvaluation of the exchange rate in countries that adopt a fixed exchange rate strategy (CFA franc zone countries), when the purpose of the strategy is to restore the real exchange rate to its equilibrium through fiscal contraction, can result in a widening of the fiscal deficit. Those countries with a variable exchange rate strategy fail to attain price stability but are able to enhance their fiscal balance, competitiveness, and growth.

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    Bibliographic Info

    Article provided by Palgrave Macmillan in its journal Staff Papers - International Monetary Fund.

    Volume (Year): 41 (1994)
    Issue (Month): 1 (March)
    Pages: 76-122

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    Handle: RePEc:pal:imfstp:v:41:y:1994:i:1:p:76-122

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    Cited by:
    1. Shatz, Howard J. & Tarr, David G., 2000. "Exchange rate overvaluation and trade protection - lessons from experience," Policy Research Working Paper Series 2289, The World Bank.
    2. Adam, Christopher S. & Bevan, David L. & Chambas, Gerard, 2001. "Exchange rate regimes and revenue performance in Sub-Saharan Africa," Journal of Development Economics, Elsevier, vol. 64(1), pages 173-213, February.
    3. Pierre van den Boogaerde & Charalambos G. Tsangarides, 2005. "Ten Years After the CFA Franc Devaluation," IMF Working Papers 05/145, International Monetary Fund.
    4. Guillermo J. Vuletin, 2004. "Exchange Rate Regimes And Fiscal Performance. Do Fixed Exchange Rate Regimes Generate More Discipline Than Flexible Ones?," Econometric Society 2004 North American Winter Meetings 474, Econometric Society.
    5. Paul R. Masson & Xavier Debrun & Catherine A. Pattillo, 2002. "Monetary Union in West Africa," IMF Working Papers 02/226, International Monetary Fund.
    6. Rama, Martin, 1998. "Wage misalignment in CFA countries: are labor market policies to blame?," Policy Research Working Paper Series 1873, The World Bank.
    7. Khattry, Barsha & Mohan Rao, J., 2002. "Fiscal Faux Pas?: An Analysis of the Revenue Implications of Trade Liberalization," World Development, Elsevier, vol. 30(8), pages 1431-1444, August.
    8. Guillermo Javier Vúletin, 2002. "Regímenes Cambiarios y Performance Fiscal ¿Generan los Regímenes Fijos Mayor Disciplina que los Flexibles?," Department of Economics, Working Papers 042, Departamento de Economía, Facultad de Ciencias Económicas, Universidad Nacional de La Plata.

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