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Fiscal policy in oil and gas-exporting economies: Good times, bad times and ugly times

Author

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  • Durand-Lasserve, Olivier
  • Karanfil, Fatih

Abstract

We study the cyclicality of fiscal policy to oil and gas revenue in emerging and developing energy-exporting countries. We build a unique oil and gas fiscal revenue database for 30 countries and develop a novel framework to identify various kinds of asymmetry in the response of public expenditure to oil and gas revenue. To explore asymmetries that may occur during revenue cycles, we distinguish between high and low oil and gas revenue regimes, as well as between positive and negative revenue shocks. Using an unbalanced panel over the period 2000–2020, we find that fiscal policy is procyclical in general but neutral when confronted with high but declining revenue, possibly influenced by policymakers' optimistic view that revenue will quickly recover. Moreover, we find the greatest level of procyclicality when revenue is low but increasing. This situation may follow periods of fiscal tightening where governments face greater social pressure to catch up with higher spending. Our results also suggest that financial openness increases procyclicality in low revenue regimes only, and that during these periods, IMF programs are associated with expenditure reductions regardless of improvements or deteriorations of oil and gas revenue.

Suggested Citation

  • Durand-Lasserve, Olivier & Karanfil, Fatih, 2023. "Fiscal policy in oil and gas-exporting economies: Good times, bad times and ugly times," Energy Economics, Elsevier, vol. 126(C).
    • Handle: RePEc:eee:eneeco:v:126:y:2023:i:c:s0140988323004851
    DOI: 10.1016/j.eneco.2023.106987
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    Cited by:

    1. Victor Pontines & Davaajargal Luvsannyam, 2023. "External Commodity Shocks and the Insulating Role of Fiscal Policy on Real Output: Evidence from a Commodity-Exporting Economy," Working Papers wp51, South East Asian Central Banks (SEACEN) Research and Training Centre.

    More about this item

    Keywords

    Oil and gas revenues; Fiscal policy; Cyclicality; Asymmetry;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • Q32 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Exhaustible Resources and Economic Development

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