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A Commodity Curse? The Dynamic Effects of Commodity Prices on Fiscal Performance in Latin America

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  • Medina, Leandro

Abstract

The recent boom and bust in commodity prices has raised concerns about the impact of volatile commodity prices on Latin American countries’ fiscal positions. Using a novel quarterly dataset─ which includes unique country specific commodity price indices and a comprehensive measure of public expenditures─ this paper analyzes the dynamic effects of commodity price fluctuations on fiscal revenues and expenditures for 8 commodity exporting Latin American countries. The results indicate that Latin American countries’ fiscal positions generally react strongly to shocks to commodity prices, yet there are marked differences across countries in observed reactions. Fiscal variables in Venezuela display the highest sensitivity to commodity price shocks, with expenditures reacting significantly more than revenues. On the other side of the spectrum, Chile’s fiscal indicators react very little to commodity price fluctuations, and their dynamic responses are very similar to those seen in high-income commodity exporting countries. A plausible explanation to this distinct behavior across countries could be related to the efficient application of fiscal rules, accompanied by strong institutions, political commitment and high standards of transparency.

Suggested Citation

  • Medina, Leandro, 2010. "A Commodity Curse? The Dynamic Effects of Commodity Prices on Fiscal Performance in Latin America," MPRA Paper 21690, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:21690
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    File URL: https://mpra.ub.uni-muenchen.de/21690/1/MPRA_paper_21690.pdf
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    References listed on IDEAS

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    Cited by:

    1. Clement Anne, 2016. "Are Commodity Price Booms an Opportunity to Diversify? Evidence from Resource-dependent Countries," Working Papers halshs-01381143, HAL.
    2. Hachula, Michael & Hoffmann, Sebastian, 2015. "The output effects of commodity price volatility: Evidence from exporting countries," Discussion Papers 2015/29, Free University Berlin, School of Business & Economics.
    3. Clement ANNE, 2016. "Are Commodity Price Booms an Opportunity to Diversify? Evidence from Resource-dependent Countries," Working Papers 201615, CERDI.
    4. Hélène Ehrhart & Samuel Guerineau, 2012. "Commodity price volatility and Tax revenues: Evidence from developing countries," Working Papers halshs-00658210, HAL.
    5. Diniz, André, 2016. "Effects of fiscal consolidations in Latin America," Textos para discussão 423, FGV/EESP - Escola de Economia de São Paulo, Getulio Vargas Foundation (Brazil).
    6. Snudden, Stephen, 2016. "Cyclical fiscal rules for oil-exporting countries," Economic Modelling, Elsevier, vol. 59(C), pages 473-483.
    7. López-Martín Bernabé & Leal-Ordoñez Julio C. & Martínez André, 2017. "Commodity Price Risk Management and Fiscal Policy in a Sovereign Default Model," Working Papers 2017-04, Banco de México.
    8. Makhlouf, Yousef & Kellard, Neil M. & Vinogradov, Dmitri, 2017. "Child mortality, commodity price volatility and the resource curse," Social Science & Medicine, Elsevier, vol. 178(C), pages 144-156.
    9. Döhrn, Roland & an de Meulen, Philipp & Kitlinski, Tobias & Schmidt, Torsten & Vosen, Simeon, 2010. "Die wirtschaftliche Entwicklung im Ausland: Der erste Schwung ist vorüber," RWI Konjunkturberichte, RWI - Leibniz-Institut für Wirtschaftsforschung, vol. 61(2), pages 5-36.
    10. Roger Alejandro Banegas-Rivero, 2016. "Escenarios y restricciones para el crecimiento en Bolivia, 2016-2020," Economía Coyuntural,Revista de temas de perspectivas y coyuntura, Instituto de Investigaciones Económicas y Sociales 'José Ortiz Mercado' (IIES-JOM), Facultad de Ciencias Económicas, Administrativas y Financieras, Universidad Autónoma Gabriel René Moreno, vol. 1(1), pages 107-121.
    11. Roland Döhrn & Philipp an de Meulen & Tobias Kitlinski & Torsten Schmidt & Simeon Vosen, 2010. "Die wirtschaftliche Entwicklung im Ausland zur Jahresmitte 2010 - Der erste Schwung ist vorüber," RWI Konjunkturbericht, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, pages 32, 09.

    More about this item

    Keywords

    Latin America; Emerging Economies; Commodity Prices; Fiscal Policy; Macroeconomics; Procyclicality; Procyclical; Dynamic Effects; Government Spending;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products

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