Is Fiscal Policy Procyclical in Resource-Rich Countries?

Ilkin Aliyev

CERGE-EI Working Papers from The Center for Economic Research and Graduate Education - Economics Institute, Prague

Abstract: We analyze fiscal policy procyclicality in resource-rich countries. We obtain a strong U-shaped relationship between the procyclicality of government capital expenditures and the resource richness measure comprised of the mineral exports share in total merchandise exports for developing countries. Such a relationship is robust to different methodologies and various checks. We consider two hypotheses: first, the political economy hypothesis, and second, the borrowing constraints hypothesis. Empirical observations appear to be consistent with the hypotheses. We build a model able to generate a U-shape effect combining political economy and borrowing constraint hypotheses. We argue that with a model of simple settings such a U-shape relationship can be obtained and interpreted.

Keywords: borrowing constraints; developing countries; fiscal policy; political economy; procyclicality; resource-rich (search for similar items in EconPapers)
JEL-codes: E62 F34 F41 O23 Q32 (search for similar items in EconPapers)
Date: 2012-07
New Economics Papers: this item is included in nep-mac and nep-pol
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Citations: View citations in EconPapers (4)

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