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The Day After Tomorrow: Designing an Optimal Fiscal Strategy for Libya

Carlos Caceres, Serhan Cevik (), Ricardo Fenochietto () and Borja Gracia ()
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Ricardo Fenochietto: International Monetary Fund, U.S.A.
Borja Gracia: International Monetary Fund, U.S.A.

Journal of Banking and Financial Economics, 2015, vol. 2, issue 4, 32-50

Abstract: Libya is highly dependent on exhaustible and volatile hydrocarbon resources, which constitute the bulk of government revenues. Although resource wealth provides the means to promote socio-economic development, procyclical fiscal policies threaten macroeconomic stability as well as fiscal sustainability and intergenerational equity. This paper provides an assessment of the cyclically adjusted fiscal stance, analyzes fiscal sustainability according the permanent income framework, and simulates various fiscal policy rules with the objective of developing a rulebased fiscal strategy that would delink the economy from oil price fluctuations, improve the management of resource wealth, and safeguard macroeconomic stability. The empirical results suggest that an “enhanced” structural fiscal balance rule would provide the strongest anchor for policymaking, accommodating for output and/or commodity price shocks, though at the cost of relative complexity.

Keywords: Fiscal policy; fiscal sustainability; fiscal rules; natural resources; public financial management (search for similar items in EconPapers)
JEL-codes: E32 E62 H11 H62 O13 (search for similar items in EconPapers)
Date: 2015
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