Do The WAEMU Member States Still Have Fiscal Space? Answering by Optimal Taxation Approach

Abstract

Yes, this paper, based on the optimal taxation approach, confirms the existence of unexploited fiscal space within WAEMU that member states could leverage to finance productive investments. Using the models of Scully (1996) and quadratic specifications within panel time-series models with heterogeneous slopes, the results provide clear evidence of an inverse U-shaped tax-growth relationship. The findings show that since 1980, the fiscal performance of WAEMU countries has been suboptimal. The optimal level of taxation that maximizes growth over the period 1980–2017 is estimated at 20.6% of GDP. In comparison, the average tax rate was 12.6% of GDP over the same period, indicating an uncollected revenue potential of 8.0% of GDP. This confirms the existence of fiscal space that could be mobilized to finance productive public expenditures and stimulate economic activity while reducing reliance on debt. The results also indicate that optimal tax rates differ across countries in the zone, meaning that the available fiscal space varies from one country to another. The paper recommends measures focused on promoting fiscal citizenship, broadening the tax base, and strengthening tax and customs administration, particularly the systems for taxpayer reporting.