The Sources of Fiscal Fluctuations

Antoine Levy, Luca Ricci and Alejandro Werner

No 2020/220, IMF Working Papers from International Monetary Fund

Abstract: This paper assesses the dynamic impact of global macroeconomic conditions, commodity price movements, shifts in portfolio preferences, and domestic shocks on fiscal outcomes—notably the budget deficit, its main components, and debt—across a wide range of countries. Heterogeneity is investigated across the level of development and other structural characteristics. Dynamics are explored via panel local projections, while robustness is assessed via dynamic panel and system GMM regressions. World growth, financial risk appetite, political events, and commodity export prices are key determinants of fiscal outcomes in EM, while domestic growth, commodity import prices, and banking crises appear to matter more in AE. Our estimates help quantify the amount of fiscal risk generated by various factors, and thus provide inputs for the design of potential insurance mechanisms or state-contingent debt instruments that could assist in smoothing fiscal fluctuations.

Keywords: fiscal; deficit; debt; fluctuations; insurance; sovereign; WP; GDP ratio; expenditure ratio; standard deviation; terms of trade; commodity exporter; GDP effect; GDP-indexed bond; trade balance (search for similar items in EconPapers)
Pages: 65
Date: 2020-10-30
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Working Paper: The Sources of Fiscal Fluctuations (2020)
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