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Is Fiscal Policy Procyclical in Developing Oil-Producing Countries?

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  • Nese Erbil
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    Abstract

    This paper examines the cyclicality of fiscal behavior in 28 developing oil-producing countries (OPCs) during 1990-2009. After testing five fiscal measures - government expenditure, consumption, investment, non-oil revenue, and non-oil primary balance - and correcting for reverse causality between non-oil output and fiscal variables, the results suggest that all of the five fiscal variables are strongly procyclical in the full sample. Also, the results are not uniform across income groups: expenditure is procyclical in the low and middle-income countries, while it is countercyclical in the high-income countries. Fiscal policy tends to be affected by the external financing constraints in the middle- and high-income groups. However, the quality of institutions and political structure appear to be more significant for the low-income group.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 11/171.

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    Length: 32
    Date of creation: 01 Jul 2011
    Date of revision:
    Handle: RePEc:imf:imfwpa:11/171

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    Related research

    Keywords: Oil producing countries; Developing countries; Economic models; Government expenditures; Nonoil sector; Oil revenues; Consumption; fiscal policy; expenditure; capital expenditure; fiscal policies; government expenditure; fiscal variables; fiscal behavior; fiscal variable; total expenditure; government spending; public spending; fiscal balances; expenditure growth; tax collection; fiscal balance; fiscal shocks; tax rates; fiscal measures; expenditures; fiscal management; tax increases; fiscal policy formulation; cyclical fiscal policy; fiscal policy response; tax base; prudent fiscal policies; discretionary fiscal policy; budget surplus; foreign capital; fiscal reaction function; estimates of expenditure; general government expenditure; tax bases; public debt; fiscal vulnerability; aggregate fiscal; fiscal sustainability; budget deficits; fiscal balance in percent; fiscal reaction; budget systems; fiscal performance; capital expenditure growth; fiscal response; spending cuts; fiscal effort;

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    References

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    1. Reinhart, Carmen & Kaminsky, Graciela & Vegh, Carlos, 2004. "When it rains, it pours: Procyclical capital flows and macroeconomic policies," MPRA Paper 13883, University Library of Munich, Germany.
    2. Ugo Panizza & Dany Jaimovich, 2007. "Procyclicality or Reverse Causality?," IDB Publications 6843, Inter-American Development Bank.
    3. Carmen M. Reinhart & Kenneth S. Rogoff & Miguel A. Savastano, 2003. "Debt Intolerance," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 34(1), pages 1-74.
    4. Arezki, Rabah & Ismail, Kareem, 2013. "Boom–bust cycle, asymmetrical fiscal response and the Dutch disease," Journal of Development Economics, Elsevier, vol. 101(C), pages 256-267.
    5. Guillermo A. Calvo & Carmen M. Reinhart, 2002. "Fear Of Floating," The Quarterly Journal of Economics, MIT Press, vol. 117(2), pages 379-408, May.
    6. Ludvig Söderling & Hanan Morsy & Martin Petri & Martin Hommes & Manal Fouad & Wojciech Maliszewski, 2007. "Public Debt and Fiscal Vulnerability in the Middle East," IMF Working Papers 07/12, International Monetary Fund.
    7. International Monetary Fund, 2010. "Fiscal Policy in Oil Producing Countries During the Recent Oil Price Cycle," IMF Working Papers 10/28, International Monetary Fund.
    8. Ethan Ilzetzki & Carlos A. Vegh, 2008. "Procyclical Fiscal Policy in Developing Countries: Truth or Fiction?," NBER Working Papers 14191, National Bureau of Economic Research, Inc.
    9. Ugo Fasano-Filho, 2000. "Review of the Experience with Oil Stabilization and Savings Funds in Selected Countries," IMF Working Papers 00/112, International Monetary Fund.
    10. Sachs, J-D & Warner, A-M, 1995. "Natural Resource Abundance and Economic Growth," Papers 517a, Harvard - Institute for International Development.
    11. Michael Gavin & Ricardo Hausmann & Roberto Perotti & Ernesto Talvi, 1996. "Managing Fiscal Policy in Latin America and the Caribbean: Volatility, Procyclicality, and Limited Creditworthiness," Research Department Publications 4032, Inter-American Development Bank, Research Department.
    12. Irene Yackovlev & Victor Duarte Lledo & Lucie Gadenne, 2009. "Cyclical Patterns of Government Expenditures in Sub-Saharan Africa," IMF Working Papers 09/274, International Monetary Fund.
    13. Robert Barro, 1973. "The control of politicians: An economic model," Public Choice, Springer, vol. 14(1), pages 19-42, March.
    14. Kit Baum, 2007. "Instrumental variables: Overview and advances," United Kingdom Stata Users' Group Meetings 2007 12, Stata Users Group.
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    Cited by:
    1. Céspedes, Luis Felipe & Velasco, Andrés, 2014. "Was this time different?: Fiscal policy in commodity republics," Journal of Development Economics, Elsevier, vol. 106(C), pages 92-106.
    2. Delavari, Majid & Gandali Alikhani, Nadiya & Naderi, Esmaeil, 2013. "Does long memory matter in forecasting oil price volatility?," MPRA Paper 46356, University Library of Munich, Germany.
    3. Komijani, Akbar & Naderi, Esmaeil & Gandali Alikhani, Nadiya, 2013. "A Hybrid Approach for Forecasting of Oil Prices Volatility," MPRA Paper 44654, University Library of Munich, Germany.

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