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

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.