Abstract

This study empirically investigates the impact of budget deficit on private consumption in seven member countries of the West African Economic and Monetary Union (WAEMU), namely Benin, Burkina Faso, Côte d’Ivoire, Mali, Niger, Senegal and Togo. It applies the pooled mean group estimation method to annual data covering the period 1970 to 2013. The results show that budget deficit and per capita GDP have long run positive effects on household consumption whereas inflation rate is detrimental to private consumption. This suggests that private consumption cannot be held responsible for any crowding-out effects that budget deficit might have on long run aggregate demand and economic growth in WAEMU countries. Therefore, restricting the size of budget deficits is costly for the development of WAEMU countries.

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