Macroeconomic Stability in Resource-Rich Countries: The Role of Fiscal Policy

By Elva Bova, Paulo A Medas, Tigran Poghosyan

February 23, 2016

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Elva Bova, Paulo A Medas, and Tigran Poghosyan. Macroeconomic Stability in Resource-Rich Countries: The Role of Fiscal Policy, (USA: International Monetary Fund, 2016) accessed December 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Resource-rich countries face large and persistent shocks, especially coming from volatile commodity prices. Given the severity of the shocks, it would be expected that these countries adopt countercyclical fiscal policies to help shield the domestic economy. Taking advantage of a new dataset covering 48 non-renewable commodity exporters for the period 1970-2014, we investigate whether fiscal policy does indeed play a stabilizing role. Our analysis shows that fiscal policy tends to have a procyclical bias (mainly via expenditures) and, contrary to others, we do not find evidence that this bias has declined in recent years. Adoption of fiscal rules does not seem to reduce procyclicality in a significant way, but the quality of political institutions does matter. Finally, non-commodity revenues tend to respond only to persistent changes in commodity prices.

Subject: Commodities, Commodity price fluctuations, Commodity prices, Expenditure, Fiscal policy, Prices

Keywords: Commodity exporter, Commodity price, Commodity price fluctuations, Commodity prices, Commodity revenue, Global, Good, Non-commodity output gap, Output gap, Price change, Price fluctuation, Procyclical fiscal policy, Resource-rich countries, WP

Publication Details

Pages:

28
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2016/036
Stock No:

WPIA2016036
ISBN:

9781475596465
ISSN:

1018-5941

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