Working Paper: NBER ID: w15780
Authors: Graciela L. Kaminsky
Abstract: The latest boom in commodity prices fueled concerns about fiscal policies in commodity-exporting countries, with many claiming that it triggered loose fiscal policy and left no funds for a rainy day. This paper examines the links between fiscal policy and terms-of-trade fluctuations using a sample of 74 countries, both developed and developing. It finds evidence that booms in the terms of trade do not necessarily lead to larger government surpluses in developing countries, particularly in emerging markets and especially during capital flow bonanzas. This is not the case in OECD countries, where fiscal policy is of an acyclical nature.
Keywords: fiscal policy; terms of trade; commodity prices; government expenditure; developing countries
JEL Codes: E3; E62; F41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Terms of trade shocks (F14) | Fiscal policy responses (E62) |
| Terms of trade booms (F14) | Government surpluses (H62) |
| Capital flow bonanzas (F32) | Government surpluses (H62) |
| Terms of trade improvements (F14) | Public savings in Argentina (H69) |
| Terms of trade booms (F14) | Government expenditure in Norway (H59) |
| Output above trend (E39) | Fiscal balances in OECD countries (H68) |
| Economic fluctuations (E32) | Fiscal balances in low-middle-income countries (H68) |
| Fiscal balances (H68) | GDP cycles (E32) |