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Spending Cuts or Tax Adjustments: How Can UEMOA Countries Control Their Budget Deficits?

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  • Yaya Keho

    (Ecole Nationale Superieure de Statistique et d'Economie Appliquee, Cote d'Ivoire and Economic Policy Analysis Centre, Cote d'Ivoire)

Abstract

This paper uses cointegration and Granger causality tests to examine the relationship between government revenue and government expenditure for seven African countries over the period 1980 to 2007. Using the bounds testing approach to cointegration, our empirical results suggest that for six out of the seven countries the two fiscal variables are cointegrated. Our results on the direction of causation support the fiscal synchronization hypothesis for Benin, Burkina Faso, Niger, and Senegal in the long-run and for Cote d'Ivoire and Mali in both the short- and long-run. Burkina Faso and Niger are in conformity with the tax-and-spend hypothesis in the short-run while Senegal and Togo follow a spend-and-tax scheme. Our findings suggest that, to control their budget deficits, Burkina Faso, Mali, and Niger should look for ways to raise revenues, while policymakers in Benin, Cote d'Ivoire, and Senegal should curtail expenditures. Togo should try to raise revenues and control public spending simultaneously.

Suggested Citation

  • Yaya Keho, 2010. "Spending Cuts or Tax Adjustments: How Can UEMOA Countries Control Their Budget Deficits?," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 9(3), pages 233-252, December.
    • Handle: RePEc:ijb:journl:v:9:y:2010:i:3:p:233-252
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    More about this item

    Keywords

    government revenues; government expenditures; budget deficit; cointegration; causality;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa

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