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Fiscal Procyclicality in Commodity Exporting Countries: How Much Does It Pour and Why?

Author

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  • Francisco Arroyo Marioli
  • Carlos A. Vegh

Abstract

A large literature has documented that fiscal policy is procyclical in emerging markets/developing countries and acyclical/countercyclical in advanced economies. This paper analyzes fiscal procyclicality in commodity-exporting countries. The paper makes two novel contributions. First, based on the "when it rains, it pours" phenomenon (that is, contractionary fiscal policy amplifies the business cycle), the paper shows that, on average, government spending magnifies the business cycle by 21 percent of the initial drop in output following a fall in commodity prices. Second, the paper estimates the welfare costs of fiscal procyclicality at 36 percent of the commodity business cycle.

Suggested Citation

  • Francisco Arroyo Marioli & Carlos A. Vegh, 2026. "Fiscal Procyclicality in Commodity Exporting Countries: How Much Does It Pour and Why?," American Economic Journal: Economic Policy, American Economic Association, vol. 18(2), pages 309-345, May.
    • Handle: RePEc:aea:aejpol:v:18:y:2026:i:2:p:309-45
    DOI: 10.1257/pol.20230668
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    More about this item

    JEL classification:

    • 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
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market

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