was this time different? fiscal policy in commodity republics
TRANSCRIPT
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NBER WORKING PAPER SERIES
WAS THIS TIME DIFFERENT? FISCAL POLICY IN COMMODITY REPUBLICS
Luis Felipe Cspedes
Andrs Velasco
Working Paper 19748
http://www.nber.org/papers/w19748
NATIONAL BUREAU OF ECONOMIC RESEARCH1050 Massachusetts Avenue
Cambridge, MA 02138
December 2013
We are grateful to Yan Carriere, Juan Matamala and Sergio Salgado for excellent research assistantship
and to Cristian Muoz for data collection. We are also grateful to Luis Catao for sharing his data with
us. We thank Guillermo Calvo, Choongsoo Kim, Harald Uhlig and three anonymous referees for veryuseful comments and suggestions. The views expressed herein are those of the authors and do not
necessarily reflect the views of the National Bureau of Economic Research.
NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official
NBER publications.
2013 by Luis Felipe Cspedes and Andrs Velasco. All rights reserved. Short sections of text, not
to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including
notice, is given to the source.
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Was This Time Different? Fiscal Policy in Commodity Republics
Luis Felipe Cspedes and Andrs Velasco
NBER Working Paper No. 19748
December 2013
JEL No. E62,F21,F32,F41,H12,H6,H63
ABSTRACT
We revisit the issue of fiscal procyclicality in commodity-rich nations commodity republics in thenomenclature of this paper. Since commodity prices are plausibly a main driver of fiscal policy outcomes
in these countries, we focus on the behavior of fiscal variables across the commodity cycle, in contrast
to behavior across the output cycle, which has been the main focus of earlier research on fiscal procyclicality.
We present evidence of reduced fiscal policy procyclicality in a number of countries. Our empiricalresults suggest that improvements in institutional quality have led to a more countercyclical fiscal
policy stance in a number of countries. The presence of fiscal rules also seems to have made a difference:
countries that use them displayed a larger shift toward fiscal counter-cyclicality between the two episodes.
Luis Felipe Cspedes
School of Business
Universidad Adolfo Ibaez
Andrs Velasco
Columbia University
School of International and Public Affairs
420 West 118th StreetNew York, NY 10027
and Oxford University
and also NBER
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t
g
t
t
t
b r
bt =rbt+t+t gt,
bt t
= 0.lim rt
tt
b e
=t
t
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( )= .
s t
s te
t
,
gt=g
t r( )
( )( )=
r s t
s tg g e
( )= 1 .tt tg r br r
+ + +
+
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( )1 r +
=
t
t t
tt tt
g r
gb
r r
+
+ +
+
t
br
+
> 0t
br
+
%x %x
Fiscal surplus = bt = r
( ) bt+
t
r
+
r( )+r+
t.
bt =
r+
t.
= 0
bt
t
=
r( )+ r+
.
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1 >r +
1
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n i
bt= rb
t++
t
i=1
n
git,
i
= ,t
it tg br r
+ +
+
bt= r n1( ) bt+t +t n1( )
r
+
t
r+
git,
gt= g
t r n 1( ) ,
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( ) ( )1
= .r n s t
s tg g e
n
.
( ) ( )1 1=
tit t
r ng b
n r r
+ + + +
+
( )( )
1=
1
r
n n
+
( )= = 1 tt it t g ng r br r
+ + +
+
( )= > 11n
n n
n =1n =1
Fiscal balance = bt= b
t+
r
r 1( )r+
+t
r+ r 1( )+ r+
,
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bt
t
=
r+ r 1( )+ r+
.
( )