Non-Linear Effects of the Deficit on Public Investment: Case of WAEMU Countries

Abstract

This paper proposes an assessment of the non-linear relationship between public deficit and public investment in debt situation. We use an endogenous growth model, with productive public spending, that we test empirically using the interaction model of Brambor and al. (2006), over the period 1980-2015, in WAEMU countries. The results of the estimates show a change in the regime of the relationship between public investment and public deficit for public debt level equal to 75% of GDP. When public debt is below this threshold, any increase in the deficit has an expansive effect on public infrastructure spending. When public debt is above the threshold of 75% of GDP, an increase in the deficit has a recessive effect on public investment.