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Pro cyclicality of Fiscal Policy and Fiscal Rules in African Currency Unions

S. Guillaumont Jeanneney and Sampawende J-A Tapsoba, Université d'Auvergne

The devaluation of the CFA Francs in 1994 has highlighted the relevance of fiscal coordination in African monetary unions. After 1994, African monetary unions have adopted a fiscal rule which prescribes a permanent nil or positive budgetary balance. This article studies how this fiscal rule affects the cyclicality of fiscal policies. The results show that compared to other African states, such a fiscal rule creates a pro cyclical bias in public expenditure during recessions. The bias justifies a modification of the rule in order to impose a fiscal surplus during expansions.