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Was this time different?: Fiscal policy in commodity republics

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  • Céspedes, Luis Felipe
  • Velasco, Andrés

Abstract

We revisit the issue of fiscal procyclicality in commodity-rich nations–commodity republics in the nomenclature of this paper. Since commodity prices are plausibly a main driver of fiscal policy outcomes in these countries, we focus on the behavior of fiscal variables across the commodity cycle, in contrast to behavior across the output cycle, which has been the main focus of earlier research on fiscal procyclicality. We present evidence of reduced fiscal policy procyclicality in a number of countries. Our empirical results suggest that improvements in institutional quality have led to a more countercyclical fiscal policy stance in a number of countries. The presence of fiscal rules also seems to have made a difference: countries that use them displayed a larger shift toward fiscal counter-cyclicality between the two episodes.

Suggested Citation

  • 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.
  • Handle: RePEc:eee:deveco:v:106:y:2014:i:c:p:92-106
    DOI: 10.1016/j.jdeveco.2013.07.012
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    More about this item

    Keywords

    Commodity prices; Optimal fiscal policy; Fiscal behavior; Institutions;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • H12 - Public Economics - - Structure and Scope of Government - - - Crisis Management
    • H6 - Public Economics - - National Budget, Deficit, and Debt
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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