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Fiscal reform and monetary union in West Africa

By Carsten Hefeker


This paper explores the interaction between the proposed monetary union for ECOWAS and structural reforms of fiscal policy. In a monetary union among symmetric countries members run a more distortionary fiscal policy and structural reform efforts fall. This can also follow in countries that adopt a unilateral peg or a foreign currency. In a monetary union with asymmetric countries reforms increase in countries that are relatively less distorted and the reverse happens in more distorted economies. Most West African Economic and Monetary Union members are thus likely to have a less distortionary fiscal policy after forming a monetary union with other ECOWAS members. Copyright © 2008 John Wiley & Sons, Ltd.

DOI identifier: 10.1002/jid.1529
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