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Revenue Volatility and Fiscal Risks: An Application of Value-at-Risk Techniques to Hong Kong's Fiscal Policy

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  • Nathan Porter

Abstract

Revenue volatility poses challenges for fiscal policy makers. It can create risks to service provision, require borrowing, or entail sudden tax changes. This paper investigates the use of value-at-risk techniques to measure the fiscal risks caused by volatility as well as the sensitivity of measured risks to policies that may limit volatility. The revenue of Hong Kong's Special Administrative Region (SAR) is among the most volatile in Asia, and thus is a natural case for applying these techniques. Reflecting its revenue volatility, Hong Kong's SAR has traditionally held high fiscal savings (reserves), and the value of the self-insurance these savings provide is also discussed.

Suggested Citation

  • Nathan Porter, 2007. "Revenue Volatility and Fiscal Risks: An Application of Value-at-Risk Techniques to Hong Kong's Fiscal Policy," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 43(6), pages 6-24, November.
    • Handle: RePEc:mes:emfitr:v:43:y:2007:i:6:p:6-24
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    Cited by:

    1. International Monetary Fund, 2007. "Guarding Against Fiscal Risks in Hong Kong SAR," IMF Working Papers 2007/150, International Monetary Fund.

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