Is Fiscal Policy Procyclical in Resource-Rich Countries?
AbstractWe analyze fiscal policy procyclicality in resource-rich countries. We obtain a strong U-shaped relationship between the procyclicality of government capital expenditures and the resource richness measure comprised of the mineral exports share in total merchandise exports for developing countries. Such a relationship is robust to different methodologies and various checks. We consider two hypotheses: first, the political economy hypothesis, and second, the borrowing constraints hypothesis. Empirical observations appear to be consistent with the hypotheses. We build a model able to generate a U-shape effect combining political economy and borrowing constraint hypotheses. We argue that with a model of simple settings such a U-shape relationship can be obtained and interpreted.
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Bibliographic InfoPaper provided by The Center for Economic Research and Graduate Education - Economic Institute, Prague in its series CERGE-EI Working Papers with number wp464.
Date of creation: Jul 2012
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borrowing constraints; developing countries; fiscal policy; political economy; procyclicality; resource-rich;
Find related papers by JEL classification:
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- F34 - International Economics - - International Finance - - - International Lending and Debt Problems
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
- O23 - Economic Development, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development
- Q32 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Exhaustible Resources and Economic Development
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-07-29 (All new papers)
- NEP-MAC-2012-07-29 (Macroeconomics)
- NEP-POL-2012-07-29 (Positive Political Economics)
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