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Limiting Fiscal Procyclicality: Evidence from Resource-Dependent Countries

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Title: Limiting Fiscal Procyclicality: Evidence from Resource-Dependent Countries
Authors: Coutinho, L
Georgiou, D
Heracleous, M
Michaelides, A
Tsani, S
Item 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.
Issue Date: 8-Nov-2021
URI: http://hdl.handle.net/10044/1/92691
DOI: https://dx.doi.org/10.2139/ssrn.2321111
ISSN: 0264-9993
Publisher: Elsevier
Copyright Statement: ©2021 The Author(s).
Keywords: 1402 Applied Economics
1403 Econometrics
1502 Banking, Finance and Investment
Publication Status: Published
Appears in Collections:Imperial College Business School