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Fiscal Rules for Natural Disaster- and Climate Change-Prone Small States

Ryota Nakatani

MPRA Paper from University Library of Munich, Germany

Abstract: How should small states formulate a countercyclical fiscal policy to achieve economic stability and fiscal sustainability when prone to natural disasters, climate change, commodity price changes, and uncertain donor grants? We study how natural disasters and climate change affect long-term debt dynamics and propose cutting-edge fiscal policy rules. We find the advantages of a recurrent expenditure rule based on non-resource and non-grant revenue, interdependently determined by government debt and budget balance targets with expected disaster shocks. Our rule-based fiscal policy framework is practically applicable for many developing countries facing increasing frequency and impact of devastating natural hazards and climatic change.

Keywords: Fiscal Rule; Natural Disaster; Climate Change; Pacific Islands; Debt Sustainability; Recurrent Expenditure; Resource Revenue; Papua New Guinea; Countercyclical Fiscal Policy; Grants (search for similar items in EconPapers)
JEL-codes: E32 E62 H5 H6 O23 O44 Q22 Q54 Q58 (search for similar items in EconPapers)
Date: 2021-02-10
New Economics Papers: this item is included in nep-mac
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Journal Article: Fiscal Rules for Natural Disaster- and Climate Change-Prone Small States (2021) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:106020

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