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The Day After Tomorrow: Designing an Optimal Fiscal Strategy for Libya

Author

Listed:
  • Carlos Caceres

    () (International Monetary Fund, U.S.A.)

  • Serhan Cevik

    () (International Monetary Fund, U.S.A.)

  • Ricardo Fenochietto

    () (International Monetary Fund, U.S.A.)

  • Borja Gracia

    () (International Monetary Fund, U.S.A.)

Abstract

Libya is highly dependent on exhaustible and volatile hydrocarbon resources, which constitute the bulk of government revenues. Although resource wealth provides the means to promote socio-economic development, procyclical fiscal policies threaten macroeconomic stability as well as fiscal sustainability and intergenerational equity. This paper provides an assessment of the cyclically adjusted fiscal stance, analyzes fiscal sustainability according the permanent income framework, and simulates various fiscal policy rules with the objective of developing a rulebased fiscal strategy that would delink the economy from oil price fluctuations, improve the management of resource wealth, and safeguard macroeconomic stability. The empirical results suggest that an “enhanced” structural fiscal balance rule would provide the strongest anchor for policymaking, accommodating for output and/or commodity price shocks, though at the cost of relative complexity.

Suggested Citation

  • Carlos Caceres & Serhan Cevik & Ricardo Fenochietto & Borja Gracia, 2015. "The Day After Tomorrow: Designing an Optimal Fiscal Strategy for Libya," Journal of Banking and Financial Economics, University of Warsaw, Faculty of Management, vol. 2(4), pages 32-50, June.
  • Handle: RePEc:sgm:jbfeuw:v:2:y:2015:i:4:p:32-50
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    Cited by:

    1. Serhan Cevik & Katerina Teksoz, 2014. "Hitchhiker's guide to inflation in Libya," International Journal of Economic Policy in Emerging Economies, Inderscience Enterprises Ltd, vol. 7(1), pages 1-21.
    2. Aldo Fabricio Ramirez-Zamudio & José Luis Nolazco Cama, 2020. "Assessment of fiscal effort and voluntary tax compliance in Peru," Revista Finanzas y Politica Economica, Universidad Católica de Colombia, vol. 12(1), pages 55-88, June.
    3. Al-Darwish, Ahmed & Cevik, Serhan & Chami, Ralph & Charap, Joshua & George, Susan & Gracia, Borja & Gray, Simon & Pattanayak, Sailendra, 2012. "Libya beyond the Revolution: Challenges and Opportunities," MPRA Paper 82683, University Library of Munich, Germany.
    4. World Bank Group, 2015. "Toward Solutions for Youth Employment," World Bank Other Operational Studies 23261, The World Bank.

    More about this item

    Keywords

    Fiscal policy; fiscal sustainability; fiscal rules; natural resources; public financial management;

    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
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products

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