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.
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