Commodity Price Shocks and the Oddson Fiscal Performance

Francis Kumah and John Matovu

No 2005/171, IMF Working Papers from International Monetary Fund

Abstract: Unanticipated changes in commodity prices can generate significant movements in fiscal aggregates. This paper seeks to understand the dynamics of these fiscal movements in the context of transitory commodity price shocks using sample data from four CIS countries- two oil-producing and two non-oil commodity-intensive countries. It adopts a structural VAR approach and identifies the dynamic effects of commodity price shocks on fiscal performance under two broad tax regimes. Stochastic simulations indicate high probabilities of fiscal overperformance in the short term when commodity prices are high. These probabilities deteriorate significantly, however, in the long term after the transitory positive commodity price shock has dissipated, particularly when lax fiscal policy is adopted during the period of the price boom.

Keywords: WP; tax regime; price shock; price index; significance level; Commodity price shocks; structural VAR; tax regimes; pro-cyclical fiscal policy; commodity price shock; commodity exporter; stabilization scheme; GDP ratio; export commodity; GDP innovation; expenditure decision; commodity price booms; commodity price stabilization scheme; commodity prices result; commodity price setup; Commodity price fluctuations; Commodity prices; Commodity price indexes (search for similar items in EconPapers)
Pages: 35
Date: 2005-09-01
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Citations: View citations in EconPapers (3)

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