Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/264233 
Year of Publication: 
2021
Series/Report no.: 
WAMI Occasional Paper Series No. 22
Publisher: 
West African Monetary Institute (WAMI), Accra
Abstract: 
Achieving fiscal convergence between countries of a monetary union helps in the design and implementation of policies to strengthen macroeconomic convergence, which mitigates the contagion effects of macroeconomic instability and ensures the long-term viability of the proposed union. This paper assesses the extent of fiscal convergence among the West African Monetary Zone (WAMZ) countries and explores the response of fiscal convergence to divergence of public debt levels, inflation rates and current account balances to determine whether strengthening of policy synchronisation would contribute to fostering fiscal convergence in these countries. Allowing for heterogeneous fiscal policies among the WAMZ countries, the result from the log t convergence test estimated over the period 2001-2019 provides strong evidence of fiscal divergence among these countries during the period. Equally, by exploiting nonlinearities in policy behaviour among the WAMZ countries in the response of fiscal convergence to policy synchronisation, the results from the dynamic panel threshold models show remarkably strong evidence that reducing divergence in public debt levels, inflation rates and current account balances would reduce fiscal divergence. Given these empirical insights, WAMZ countries would need to strengthen fiscal consolidation measures to improve the primary balance and enhance capacity to reduce public debt to sustainable levels. Similarly, these countries should provide support to enhance domestic productive capacity and diversify the export sector to improve external sector performance. These measures should be accompanied by additional fiscal reforms to constrain discretion in fiscal policies to promote fiscal convergence, including the implementation of fiscal rules and Fiscal Responsibility Act.
Subjects: 
fiscal convergence
public debt
inflation
current account
dynamic panel
WAMZ
JEL: 
C33
E62
H60
O55
Document Type: 
Research Report

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.