Limiting fiscal procyclicality: Evidence from resource-dependent countries

Leonor Coutinho, Dimitrios Georgiou, Maria Heracleous, Alexander Michaelides and Stella Tsani

Economic Modelling, 2022, vol. 106, issue C

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.

Keywords: Fiscal procyclicality; Commodity prices; Natural resources; Sovereign wealth funds; Fiscal rules (search for similar items in EconPapers)
JEL-codes: E62 F44 H30 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:106:y:2022:i:c:s0264999321002893

DOI: 10.1016/j.econmod.2021.105700

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