Limiting Fiscal Procyclicality: Evidence from Resource-Dependent Countries
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Working Paper
Author(s)
Coutinho, Leonor
Georgiou, Dimitrios
Heracleous, Maria
Michaelides, Alexander
Tsani, Stella
Type
Working Paper
Abstract
We provide evidence that fiscal policy in resource-dependent countries is procyclical. The empirical analysis reveals that on average real government consumption in these countries tends to significantly rise (fall) in good (bad) times. To control for endogeneity we use an instrumental variable for GDP growth that arises naturally, namely the growth in commodity prices of the main natural resource export. We also find that fiscal policy procyclicality is lower in more democratic regimes, and in countries with stronger checks and balances on the executive. Operating a sovereign wealth fund can help limit fiscal policy procyclicality in some instances, while we find no such evidence for fiscal rules.
Date Issued
2021-11-08
Citation
2021
ISSN
0264-9993
Publisher
Elsevier
Copyright Statement
©2021 The Author(s).
Identifier
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2321111
Subjects
1402 Applied Economics
1403 Econometrics
1502 Banking, Finance and Investment
Economics
Publication Status
Published