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Cyclical fiscal rules for oil-exporting countries

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  • Snudden, Stephen

Abstract

Budget-balance tax-gap rules are preferred to other fiscal policy rules to stabilize the macroeconomic volatility and welfare in oil-exporting countries. The output-inflation trade-off is of particular concern for oil exporters relative to non-oil commodity exporters due to the pass through of oil prices into headline inflation which warrants fiscal reaction to crude oil revenue. This result is robust to several instruments satisfying the rule but with reduced efficiency for those instruments that impact potential output such as government investment and capital taxes. These rules are desirable for fixed exchange rate regimes but are unable to achieve the same degree of stability as when coordinated with inflation-targeting monetary policy. Even under optimal inflation-targeting regimes, the adoption of budget-balance tax-gap rules can produce reductions in macroeconomic volatility and welfare gains.

Suggested Citation

  • Snudden, Stephen, 2016. "Cyclical fiscal rules for oil-exporting countries," Economic Modelling, Elsevier, vol. 59(C), pages 473-483.
  • Handle: RePEc:eee:ecmode:v:59:y:2016:i:c:p:473-483
    DOI: 10.1016/j.econmod.2016.08.009
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    1. repec:eee:ecmode:v:74:y:2018:i:c:p:219-229 is not listed on IDEAS
    2. Landon, Stuart & Smith, Constance, 2017. "Does the design of a fiscal rule matter for welfare?," Economic Modelling, Elsevier, vol. 63(C), pages 226-237.
    3. Jalali Naini, Ahmad Reza & Naderian, Mohammad Amin, 2017. "Financial Vulnerability and Stabilization Policy in Commodity Exporting Emerging Economies," MPRA Paper 84481, University Library of Munich, Germany.
    4. Tsani, Stella, 2015. "On the relationship between resource funds, governance and institutions: Evidence from quantile regression analysis," Resources Policy, Elsevier, vol. 44(C), pages 94-111.

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