Fiscal Rules for Commodity Exporters:Prudence and Procyclicality

Carlos García, Jorge Restrepo () and Evan Tanner ()
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Jorge Restrepo: Banco Central de Chile, http://www.bcentral.cl

ILADES-UAH Working Papers from Universidad Alberto Hurtado/School of Economics and Business

Abstract: This paper compares welfare levels under alternative fiscal rules for small open, commodity exporter, economies whose fiscal income varies with the world commodity price (in a dynamic, stochastic, and general equilibrium setting). Between the extremes of a procyclical balanced budget policy and an acyclical spending rule, there is a continuum of rules. Thus, the best degree of spending stabilization is found. The acylical rule benefits households that do not enjoy access to capital markets by providing a financial cushion that they themselves cannot provide, boosting their mean consumption. However, households that enjoy full access to capital markets suffer under this rule, since the government reduces their role in smoothing consumption and accumulating assets.

Keywords: Fiscal rules; welfare; small open economy; rule-of-thumb consumers (search for similar items in EconPapers)
JEL-codes: E32 E61 E62 E63 F41 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2009-12
New Economics Papers: this item is included in nep-dge and nep-mac
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