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  5. Fiscal Procyclicality in Commodity Exporting Countries: How Much Does It Pour and Why?

蝌蚪网 Journal:
Economic Policy

ISSN 1945-7731 (Print) | ISSN 1945-774X (Online)

Fiscal Procyclicality in Commodity Exporting Countries: How Much Does It Pour and Why?

  • Francisco Arroyo Marioli
  • Carlos A. Vegh
蝌蚪网 Journal: Economic Policy (Forthcoming)

Abstract

A large literature has documented that fiscal policy is procyclical in emerging markets/developing countries and acyclical/countercyclical in advanced economies. This paper analyzes fiscal procyclicality in commodity-exporting countries. The paper makes two novel contributions. First, based on the "when it rains, it pours" phenomenon (that is, contractionary fiscal policy amplifies the business cycle), the paper shows that, on average, government spending magnifies the business cycle by 21 percent of the initial drop in output following a fall in commodity prices. Second, the paper estimates the welfare costs of fiscal procyclicality at 36 percent of the commodity business cycle.

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