The Sources of Fiscal Fluctuations

By Antoine Levy, Luca A Ricci, Alejandro M. Werner

October 30, 2020

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Antoine Levy, Luca A Ricci, and Alejandro M. Werner The Sources of Fiscal Fluctuations, (USA: International Monetary Fund, 2020) accessed November 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

This paper assesses the dynamic impact of global macroeconomic conditions, commodity price movements, shifts in portfolio preferences, and domestic shocks on fiscal outcomes—notably the budget deficit, its main components, and debt—across a wide range of countries. Heterogeneity is investigated across the level of development and other structural characteristics. Dynamics are explored via panel local projections, while robustness is assessed via dynamic panel and system GMM regressions. World growth, financial risk appetite, political events, and commodity export prices are key determinants of fiscal outcomes in EM, while domestic growth, commodity import prices, and banking crises appear to matter more in AE. Our estimates help quantify the amount of fiscal risk generated by various factors, and thus provide inputs for the design of potential insurance mechanisms or state-contingent debt instruments that could assist in smoothing fiscal fluctuations.

Subject: Commodity price fluctuations, Commodity prices, Expenditure, Fiscal stance, Government debt management

Keywords: Commodity exporter, Debt, Deficit, Expenditure ratio, Fiscal, Fluctuations, GDP effect, GDP ratio, GDP-indexed bond, Insurance, Sovereign, Standard deviation, Terms of trade, Trade balance, WP

Publication Details

Pages:

65
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2020/220
Stock No:

WPIEA2020220
ISBN:

9781513560168
ISSN:

1018-5941

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