Fiscal Rules and Pro-cyclicality of the Fiscal Policy in CEMAC countries

BIKAI, J. Landry (2015): Fiscal Rules and Pro-cyclicality of the Fiscal Policy in CEMAC countries.

Abstract

The aim of this paper is to analyze the cyclicality of fiscal policy in the CEMAC zone and identify the link between this cyclicality effects and the multilateral supervision rules. Based on a non-dynamic panel data model inspired by Gali and Perotti (2003), and Cimadomo (2005), the results show that the fiscal policies applied in CEMAC zone are highly pro-cyclical. This pro-cyclicality is accentuated since the practice of multilateral supervision rules.Counter-cyclical fiscal policies appear as an alternative for the countries of this community to smooth out fluctuations in their business cycles and simultaneously reduce the probability of asymmetric shocks that seem harmful to the monetary policy.A review of the convergence criteria is therefore necessary since those used in CEMAC zone do not take into account the intrinsic characteristics of countries in the region.

• Item Type: MPRA Paper
• Language: English
• Keywords: Fiscal policy, Pro cyclicality, monetary union, multilateral supervision
• Subjects: E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles; E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook; H - Public Economics > H3 - Fiscal Policies and Behavior of Economic Agents

References

Adedeji, O. and Williams O. H. (2007) : « Fiscal Reaction Functions in the CFA Zone: An Analytical Perspective», IMF Working Papers 07/232, International Monetary Fund.

Aghion, P. and Marinescu I., (2007) : « Cyclical Budgetary Policy and Economic Growth : What Do We Learn from OECD Panel Data? », NBER Macroeconomic Annual, 22, pp. 251-93.

Aizenman J., M. Gavin and R. Haussmann (2000) : « Optimal Tax and Debt Policy with Endogenously Imperfect Credit worthiness », Journal of International Trade and Economic Development, Vol. 9, No. 4, pp. 367–95.

Akitoby B., B. Clements, S. Gupta and G. Inchauste (2006): « Public Spending, Voracity and Wagner’s Law in Developing Countries », European Journal of Political Economy, Vol. 2, pp. 908–24.

Alesina A. and R. Perotti, (1995): « Fiscal expansions and adjustments in OECD countries », Economic Policy, octobre, pp. 207-248.

Alesina, A., F. Campante and G. Tabellini (2008) : « Why Is Fiscal Policy often Procyclical? », Journal of the European Economic Association, Vol. 6, No. 5, pp. 1006–36.

Ary Tanimoune and Plane (2004) : « La convergence nominale dans le cadre du Pacte de Solidarité and de Croissance de l'Uemoa » : le défi de 2005 », Document de recherche, CERDI.

Ary Tanimoune, Plane and Combes (2005) : « Les effets non linéaires de la politique budgétaire: le cas de l’Union Economique and Monétaire Ouest Africaine», Communication aux journées de l’AFSE, Clermont-Ferrand, 19 and 20 mai 2005.

Avom D. (2007) : « La coordination des politiques budgétaires dans une union monétaire : l'expérience récente des pays de la Cemac », Revue Tiers Monde, 2007/4 n° 192, p. 871-893.

Avom D., and Gbandnkom D. (2003) : « La surveillance multilatérale des politiques budgétaires dans la zone Cemac: bilan et perpectives », Mondes en developpement, no 123 2003/3, p. 107 à 125.

Barro Robert J. (1974): « Are Government Bonds Net Wealth », Journal of Political Economy, Vol. 82, nov-dec, pp. 1095-1117.

Barro Robert J. (1989):« The Ricardian approach to budget deficits »,Journal of Economic Perspectives, vol.3.

Barro, R. (1979):« On the Determination of the Public Debt », Journal of Political Economy, Vol. 87, No. 5, pp. 940–71.

Bikai J.L. and Kamgna S.Y. (2012) : « Effets de seuils de l’inflation sur l’activité économique en CEMAC : analyse par un modèle de panel à seuil non dynamique », In Economies and Sociétés, HS, n°45, 5/2012, p. 1017-1038.

Bikai J.L. (2010) : « Les effets non linéaires des déficits budgétaires sur l’activité économique en zone CEMAC », MPRA paper, n°24524.

Blanchard O. J. (1990b): « Suggestions for a New Sand of Fiscal indicator », OECD Department of Economics and Statistics Working Papers, no 79.

Blanchard O., Dell'Ariccia G. and Mauro P., (2010) : «Rethinking Macroeconomic Policy»,Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(s1), pages 199-215, 09.

Brunila A., M. Buti and J. Veld (2002): « Fiscal policy in Europe: how effective are the automatic stabilisers?», European EconomyEconomic Papers, no 177.

Calderon, C., R. Duncan and K. Schmidt-Hebbel (2004):« Institutions and Cyclical Properties of Macroeconomic Policies », Central Bank of Chile Working Paper No. 285.

Carmignani, F. (2010):« Cyclical Fiscal Policy in Africa», Journal of Policy Modelling, Vol. 32, pp. 254–67.

Cimadomo, J. (2005) : « Le pacte de stabilité a-t-il renforce la pro cyclicité de la politique budgétaire », CEPII (Centre d’Etudes Prospectives et d’Informations Internationales) No. 247.

Creel J. and al (1992) : « DOIT-ON OUBLIER LA POLITIQUE BUDGÉTAIRE? Une analyse critique de la nouvelle théorie anti-keynésienne des finances publiques » Revue de l’OFCE 92.

Creel J., Latreille T. and J. Le Cacheux, (2002) : « Le Pacte de stabilité et les politiques budgétaires dans l’Union européenne », Revue de l’OFCE, Hors-série « La mondialisation et l’Europe », pp. 245-297.

Darvas, Z., A. K. Rose and G. Szapáry (2005): « Fiscal Divergence and Business Cycle Synchronization: Irresponsibility is Idiosyncratic », NBER Working Papers 11580, National Bureau of Economic Research.

Diallo O. (2009) : « Tortuous Road Toward Countercyclical Fiscal Policy: Lessons from Democratized Sub-Saharan Africa », Journal of Policy Modeling, Vol. 31, No. 1, p. 36–50.

Doré, O. and P. Masson (2002):« Fiscal Experience with Budgetary Convergence in the WAEMU », International Monetary Fund Working Papers 02/108.

Easterly, W. and S. Rebelo (1993):« Fiscal Policy and Economic Growth: an Empirical Investigation », Journal of Monetary Economics, Vol. 32, pp. 417–58.

Fiorito R. (1997): « Stylized facts of government finance in the G7 », IMF Working Paper 97/42.

Fiorito R. and Kollintzas T. (1994) : « Stylized facts of business cycles in the G7 from a real business cycles perspective»,European Economic Review 38, 235– 269.

Frankel J.A., Végh C. A. and Vulletin G. (2011): « On Graduation from Fiscal Procyclicality», NBER Working Papers 17619, National Bureau of Economic Research, Inc.

Gali, J. and R. Perotti (2003) : « Fiscal Policy and Monetary Integration in Europe », Economic Policy, Vol. 18, No. 37, pp. 533–72.

Gavin, M. and R. Perotti (1997) : « Fiscal Policy in Latin America », NBER Macroeconomics Annual, 12, pp. 11–71, MIT Press, Cambridge.

Giudice G. and al (2003) : « Can fiscal consolidations be expansionary in the EU? Ex-post evidence and ex-ante analysis », European Commission, Economic Papers, n° 195, décembre.

Guillaumont S. J. and Tapsoba S. J. (2011) : « Pro cyclicité de la politique budgétaire et surveillance multilatérale dans les unions monétaires africaines », Working Papers halshs-00554337, HAL.

Guzman M. (2009) : « On the behavior of fiscal policy with costly expectations », Economica, Departement of Economics, University of Plata, vol. 0, pages 29-44, January-D.

Hakkio C.S., Rush M. (1991) : « Is the Deficit Too Large», Economic Inquiry, 29, P.429-445.

Hamilton J. D. and Flavin M. A. (1986) : « On the limitations of government Borrowing: A framework for empirical Testing ». American economic review 76 p. 808-19.

Hénin P.Y. (1997) : « Soutenabilité des déficits et ajustements budgétaires », Revue Economique 48 (3), mai, pp.371-395.

Kennedy S. and Robins J. (2001) : « The Role of Fiscal Discipline in Determining Fiscal Performance », Department of Finance Working Paper, 2001-16, Canada.

Lane, P. (2003b) : « The Cyclical Behavior of Fiscal Policy: Evidence from the OECD», Journal of Public Economies, Vol. 87, pp. 2661–75.

Llau P., (1999) : « Les contractions budgétaires en Europe. Les enseignements des ajustements danois, irlandais and suédois », Revue Française de Finances Publiques, 68, 17-31.

Minea A. and Villieu P., (2007) : « Investissement public et Effets non linéaires des déficits budgétaires ». LEO, Université d’Orléans.

Ondo Ossa (2005) : « Effets anti-keynésiens et ajustements : le cas de la zone CEMAC » Revue du L.E.A, , vol. 6, numéro spécial,janv-juin, 3-26.

Ott D.J. and Ott A.F., (1965) : « Budget balance and equilibrium income », Journal of Finance, n° 20, p.71-77.

Perotti R. (2007) : « Fiscal Policy in Developing Countries: A Framework and Some Questions », World Bank Policy Research Working Paper Series N.4365, World Bank Group.

Perotti R., (1996) : « Fiscal consolidation in Europe: Composition matters », The American Economic Review, vol. 86, n°2.

Rand, J. and F. Tarp (2002) : « Business Cycles in Developing Countries: Are They Different?», World Development, Vol. 30, No. 12, pp. 2071–88.

Ravn, M. O. and H. Uhlig (2002) : « On Adjusting the Hodrick-Prescott Filter for the Frequency of Observations», The Review of Economics and Statistics, Vol. 84, No. 2, pp. 371–75.

Rzonca A. and Cizkowicz P. (2005) : « Non-keynesian Effects of Fiscal contraction in New Members States », European Central Bank Working Paper, No. 519, September.

Schlarek A. (2003) : « Fiscal policy and private consumption in industrial and developed countries », Lund University, Working Paper 2003, No. 20, December.

Solow, R., (2002) : « Peut-on recourir à la politique budgétaire? Est-ce souhaitable? », Revue de l’OFCE, n°83, octobre, pp. 7-24.

Strazicich M. (1997) : «Does tax smoothing differ by the level of government? Time series evidence from Canada and the United States. Journal of Macroeconomics 19, 305– 326.

Sutherland A., (1997) : « Fiscal crises and aggregate demand: Can high public debt reverse the effects of fiscal policy? », Journal of Public Economics, 65, 147-162.

Talvi, E. and C. Végh (2005) : « Tax Base Variability and Procyclical Fiscal Policy in Developing Countries », Journal of Development Economics, Vol. 78, No. 1, pp. 156–90.

Tapsoba S.J., Mpatswe G. K. and York R. (2011) : « The cyclicality of Fiscal Policies in the Cemac Region »(August). IMF working Papers, Vol., pp. 1-21, 2011.

Thornton, J. (2008) : « Explaining Procyclical Fiscal Policy in African Countries », Journal of African Economies, Vol. 17, No. 3, pp. 451–64.

Trehan B. and Walsh C.E. (1991) : « Testing Intertemporel Budget Constraints : Theory and Applications to US Federal Budget and Current Account Deficits », Journal of Money, Credit and Banking, 23, p.206-223.

Trehan, B. and Walsh C.E. (1988) : "Common trends, the government’s Budget constraint, and revenue smoothing", Journal of Economic Dynamics and Control, n° 12 (1-2), p. 111-127

Tsangarides, C. G. and P. van den Boogaerde (2005) : «Ten Years After the CFA Franc Devaluation: Progress Toward Regional Integration in the WAEMU »,IMF Working Paper 05/145, International Monetary Fund.

Van den noord, P. (2000) : « The size and role of automatic fiscal stabilisers in the 1999s and beyond », OECD Economics Department Working Paper.

Vegh C. A. and Vulletin G. (2012) : « How is Taxe Conducted over the Business Cycle », NBER Working Paper series 17753.

Vincent J-P and Lamotte H. (1993) : La nouvelle macroéconomie classique, Paris, PUF

Wilcox, D.W. (1989) : « The sustainability of governments deficits : Implications of the present-value Budget constraint », Journal of Money, Credit, and Banking, n°21 (3), (291-306).

Wyplosz, C. (2002) : « Fiscal Policy: Institutions versus Rules », CEPR Discussion Paper No. 3238.