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The Cyclicality of Fiscal Policy in the Middle East and Central Asia; Is the Current Crisis Different?

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  • International Monetary Fund

Abstract

The countries of the Middle East and North Africa, and the Caucasus and Central Asia have the highest output volatility in the world. Fiscal policy is a powerful tool that can help dampen the business cycles. This paper analyzes the cyclical properties of fiscal policy in the region during the past four decades and explores whether the response during the current global economic crisis is different in 2009. Across a sample of 28 countries, we find that fiscal policy has typically amplified the business cycles and that it has been more procyclical in good times than in bad times. However, the response to the current crisis has differed from the past in that about half of the countries responded countercyclically in 2009. Going forward, the fiscal space during downturns varies widely across countries, depending on the level of debt, access to capital markets, and natural resource wealth. Not surprisingly, the oil exporters have more fiscal room than oil importers, although there are some oil importers that still have room to respond countercyclically in bad times.

Suggested Citation

  • International Monetary Fund, 2010. "The Cyclicality of Fiscal Policy in the Middle East and Central Asia; Is the Current Crisis Different?," IMF Working Papers 10/68, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:10/68
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    References listed on IDEAS

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    1. Alberto Alesina & Filipe R. Campante & Guido Tabellini, 2008. "Why is Fiscal Policy Often Procyclical?," Journal of the European Economic Association, MIT Press, vol. 6(5), pages 1006-1036, September.
    2. Graciela L. Kaminsky & Carmen M. Reinhart & Carlos A. Végh, 2005. "When It Rains, It Pours: Procyclical Capital Flows and Macroeconomic Policies," NBER Chapters,in: NBER Macroeconomics Annual 2004, Volume 19, pages 11-82 National Bureau of Economic Research, Inc.
    3. repec:hrv:faseco:34729976 is not listed on IDEAS
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    Cited by:

    1. Magda Kandil & Nazire Nergiz Dincer, 2008. "A comparative analysis of exchange rate fluctuations and economic activity: The cases of Egypt and Turkey," International Journal of Development Issues, Emerald Group Publishing, vol. 7(2), pages 136-159, October.
    2. Sergey Vlasov, 2011. "Russian Fiscal Framework Past, Present and Future.Do we Need a Change?," Ensayos Económicos, Central Bank of Argentina, Economic Research Department, vol. 1(64), pages 35-81, October -.
    3. Serhan Cevik, 2011. "Policy Coordination in Fiscal Federalism; Drawing Lessons From the Dubai Debt Crisis," IMF Working Papers 11/147, International Monetary Fund.
    4. International Monetary Fund, 2011. "United Arab Emirates; Selected Issues and Statistical Appendix," IMF Staff Country Reports 11/112, International Monetary Fund.
    5. Baldi, Guido, 2013. "Fiscal Policy Institutions and Economic Transition in North Africa," MPRA Paper 48677, University Library of Munich, Germany.

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