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Fiscal Regimes In and Outside the MENA Region

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  • Ibrahim Ahmed Elbadawi
  • Raimundo Soto

    (Instituto de Economía. Pontificia Universidad Católica de Chile.)

Abstract

The 1990s ushered the world not only into a democracy wave, following the collapse of the former Soviet Union, but also a wave of fiscal rules, where the number of countries adopting this fiscal regime steadily rose from only 10 in 1990 to reach 97 in 2009. Countries that depend on hydrocarbons tend to suffer from fiscal policies that are highly susceptible to energy price shocks. This provides incentives for implementing fiscal stabilization instruments in the form of "fiscal rules". However, the resource-rich but largely democracy-deficit MENA region has been a fiscal rules-free region. Against this backdrop, this paper asks two fundamental questions: why has MENA chose not to adopt fiscal rules? And what role, if any, resources dependence and political institutions might have played in this outcome? We find that lack of democracy and weak systems of political checks and balances that characterize MENA countries appear to have outweighed the positive impacts of oil resources so that fiscal instability persists despite ample oil revenues. The nascent Arab 'democracy spring' might tip the scale in favor of the adoption of fiscal rules by emerging democratic governments in the region. However, stronger systems of political checks and balances are also needed and, unfortunately, not necessarily a certain outcome. A move toward inflation targeting regimes, as proposed for Tunisia and Egypt, might also provide additional impetus for adoption of fiscal rules as the evidence of Chile and other inflation targeters suggests.

Suggested Citation

  • Ibrahim Ahmed Elbadawi & Raimundo Soto, 2011. "Fiscal Regimes In and Outside the MENA Region," Documentos de Trabajo 398, Instituto de Economia. Pontificia Universidad Católica de Chile..
  • Handle: RePEc:ioe:doctra:398
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    Cited by:

    1. Raimundo Soto & Ilham Haouas, 2012. "Has the UAE Escaped the Oil Curse?," Working Papers 728, Economic Research Forum, revised 2012.
    2. Ray, Nikhil. & Velasquez, Agustin. & Islam, Iyanatul,, 2015. "Fiscal rules, growth and employment : a developing country perspective," ILO Working Papers 994881313402676, International Labour Organization.
    3. repec:ilo:ilowps:488131 is not listed on IDEAS

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    More about this item

    Keywords

    Fiscal regimes; fiscal stabilization; discrete-choice panel-data models;
    All these keywords.

    JEL classification:

    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy

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