Fiscal Reform and Monetary Union in West Africa



as the difference between actual and desired output increases. The higher this gap is, the
more incentive the government has not to increase it further by pushing fiscal deficits
higher. Hence, xi will be lowered which, ceteris paribus, will require that si increases (given
the budget constraint). There is hence a positive relation between structural reforms and the
output distortions in economy i (equation 8). However, fiscal revenue increases if there is a
large financial need and therefore (9) is increasing in Fi but falling in
(y* - yi ).

3. Monetary Union Among Symmetric Countries

3.1. Government Policy

Having derived the national case, I now turn to monetary union and begin with the case of
symmetric countries, which is thought of as capturing a monetary union among similar
countries. This can be thought to reflect a group of countries such as the present WAEMU
members which are relatively similar in comparison to the differences that are displayed by
the larger group of ECOWAS members (Debrun et al. 2002).

While the governments’ objective functions do not change, the utility function of the
central bank becomes

LCCB = 1

2


θCCB 2 +1n=t(y,- y* )2
n    i
=1


(10)


where n is the number of participants to the monetary union. As argued above, it is
henceforth assumed that
θB = θCCB .

Given these preferences, the ECB's reaction function is

∏ + ɪ n=1[(y*

(11)


1 B

10



More intriguing information

1. Determinants of U.S. Textile and Apparel Import Trade
2. The name is absent
3. Tobacco and Alcohol: Complements or Substitutes? - A Statistical Guinea Pig Approach
4. Thresholds for Employment and Unemployment - a Spatial Analysis of German Regional Labour Markets 1992-2000
5. Types of Cost in Inductive Concept Learning
6. The name is absent
7. ‘I’m so much more myself now, coming back to work’ - working class mothers, paid work and childcare.
8. Improvements in medical care and technology and reductions in traffic-related fatalities in Great Britain
9. Improving the Impact of Market Reform on Agricultural Productivity in Africa: How Institutional Design Makes a Difference
10. AGRICULTURAL TRADE IN THE URUGUAY ROUND: INTO FINAL BATTLE