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Fiscal policy in commodity-exporting LDCs

  • Cuddington, John

Revenues in countries that rely heavily on one or two primary commodities tend to fluctuate widely with prices in international markets. This fluctuation is especially wide when export taxes are a large part of the total tax base but also when the private sector reaps most of the gains from booming prices. Most developing countries have over consumed in response to windfalls from surges in world prices. In many cases government spending has outstripped the gain in revenues. These sharp increases in government spending are difficult to reverse when the boom ends and often lead to large fiscal deficits rather than surpluses. Several countries, however, whose policies emphasize conservative fiscal management, have generally benefitted from booms. Clearly, good fiscal control during periodic boom episodes enables these booms to temporarily accelerate the rate of economic development.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 33.

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Date of creation: 31 Jul 1988
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Handle: RePEc:wbk:wbrwps:33
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  1. Svensson, Lars E O & Razin, Assaf, 1983. "The Terms of Trade and the Current Account: The Harberger-Laursen-Metzler Effect," Journal of Political Economy, University of Chicago Press, vol. 91(1), pages 97-125, February.
  2. Balassa, Bela, 1986. "Policy Responses to Exogenous Shocks in Developing Countries," American Economic Review, American Economic Association, vol. 76(2), pages 75-78, May.
  3. Cuddington, John T. & Urzua, Carlos M., 1989. "Trends and cycles in Colombia's real GDP and fiscal deficit," Journal of Development Economics, Elsevier, vol. 30(2), pages 325-343, April.
  4. Pinto, Brian, 1987. "Nigeria during and after the Oil Boom: A Policy Comparison with Indonesia," World Bank Economic Review, World Bank Group, vol. 1(3), pages 419-45, May.
  5. Cardoso, Eliana, 1981. "The Great Depression and Commodity-exporting LDCs: The Case of Brazil," Journal of Political Economy, University of Chicago Press, vol. 89(6), pages 1239-50, December.
  6. Neary, J Peter & van Wijnbergen, S, 1984. "Can an Oil Discovery Lead to a Recession? A Comment," Economic Journal, Royal Economic Society, vol. 94(374), pages 390-95, June.
  7. Adams, F Gerard & Behrman, Jere R & Roldan, Romualdo A, 1979. "Measuring the Impact of Primary Commodity Fluctuations on Economic Development: Coffee and Brazil," American Economic Review, American Economic Association, vol. 69(2), pages 164-68, May.
  8. Khan, Mohsin S, 1986. "Developing Country Exchange Rate Policy Responses to Exogenous Shocks," American Economic Review, American Economic Association, vol. 76(2), pages 84-87, May.
  9. Corden, W M, 1984. "Booming Sector and Dutch Disease Economics: Survey and Consolidation," Oxford Economic Papers, Oxford University Press, vol. 36(3), pages 359-80, November.
  10. Ahamed, Liaquat, 1986. "Stabilization Policies in Developing Countries," World Bank Research Observer, World Bank Group, vol. 1(1), pages 79-110, January.
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