Fiscal Fatigue, Public Debt Structure and Sustainability: A DSGE Model for West African Economic and Monetary Union

Isaac Amedanou ()
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Isaac Amedanou: CERDI - Centre d'Études et de Recherches sur le Développement International - IRD - Institut de Recherche pour le Développement - CNRS - Centre National de la Recherche Scientifique - UCA - Université Clermont Auvergne, UCA - Université Clermont Auvergne

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Abstract: The present paper simulates several financing schemes for scaling-up public investment while stabilizing debt in WAEMU countries experiencing fiscal fatigue. We construct a DSGE model of a small open economy that incorporates the behaviour of four types of agents: firms, households, government, and the Central Bank. The analysis assumes that when the government faces fiscal fatigue, it can turn to debt to finance the scaling-up of public investment. To ensure long-term debt sustainability, fiscal adjustments are consistently implemented through transfers and/or taxes, subject to respective caps and floors. Simulations indicate that, in the presence of natural resource revenues, scaling up public investment is feasible using concessional borrowing only or by incorporating additional external commercial or domestic borrowing while maintaining debt sustainability. Otherwise, external commercial debt appears to carry more risk.

Keywords: Fiscal fatigue; debt structure; debt sustainability; DSGE; WAEMU (search for similar items in EconPapers)
Date: 2024-01-31
Note: View the original document on HAL open archive server: https://hal.science/hal-04496782v1
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Published in International Economic Journal, 2024, pp.1-33. ⟨10.1080/10168737.2024.2302819⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04496782

DOI: 10.1080/10168737.2024.2302819

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