The Effects of Regulatory Quality on the Pro-Cyclicality of Fiscal Policy in Countries in the Central African Economic and Monetary Community (CA EMC)

This article aims to analyze the effects of the regulatory quality on fiscal pro-cyclicality in CAEMC member countries based on the annual panel data for the years 1996 to 2016. To achieve that, we used, on the one hand, the fiscal policy reaction function (Taylor, 2000) as well as institutional quality, and on the other hand, the system-generalized method of moments (system GMM) to empirically understand the effects of the regulatory quality on fiscal pro-cyclicality in CAEMC member countries. Our findings show that the current state of regulatory quality in CAEMC countries promotes the pro-cyclicality of the fiscal policy in this sub-region. In addition, these findings show that the effect of the current state of regulatory quality on fiscal pro-cyclicality is more significant when the regulatory quality is linked to the economic cycle. It is therefore necessary to bring about profound institutional reform in the CAEMC countries in order to redirect the fiscal budget towards counter-cyclicality.