Fiscal Reform and Monetary Union in West Africa

θ^B(Fi
x_i =       ⁱ

^- ɑj^-d (y** ^- yj
^νι

(7)

The parameters used throughout are defined in table 1.

Table 1: Definitions

ν1 = bθ B + d	ω1 =(θB )2 + Θg
ν2 = bθB + d/ n	ω2 = (θB )2 + θG / n ω3 = (θB )2 + Θg / nn

Taking this constraint into account and optimizing the government's objective
function with respect to s_i yields

SN = cω^L±b(y*Ξyi)l
^ι        λν₁² + c ²ω₁

(8)

which can then again be used in the budget constraint to yield fiscal policy as

x1^N

Fι^λθB^νι ^- (y* ^- y_ι ∖⅛iv_l ^{+ cω} )
λν₁² + c²ω₁

(9)

Not surprisingly, given the budget constraint of the government, the higher the
exogenous fiscal requirements, the higher structural reforms will be. They will also increase