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Oil prices and the fiscal policy response in oil-exporting countries

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  • El Anshasy, Amany A.
  • Bradley, Michael D.

Abstract

This paper empirically investigates the role that oil prices play in determining fiscal policy in oil-exporting countries. We derive and estimate a fiscal policy equation that links government spending not only to oil price shocks, but also to oil price volatility and the skewness of oil price changes. We find that in the long run, higher oil prices induce larger government size. In the short run, however, government expenditures rise less than proportionately to the increase in oil revenues, reflecting increasing prudence in fiscal policy in oil producing countries. This result is robust to using a variety of specifications of the oil price shock, and to using different sample periods.

Suggested Citation

  • El Anshasy, Amany A. & Bradley, Michael D., 2012. "Oil prices and the fiscal policy response in oil-exporting countries," Journal of Policy Modeling, Elsevier, vol. 34(5), pages 605-620.
    • Handle: RePEc:eee:jpolmo:v:34:y:2012:i:5:p:605-620
    DOI: 10.1016/j.jpolmod.2011.08.021
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    More about this item

    Keywords

    Oil prices; Fiscal policy; GMM; PMG;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H5 - Public Economics - - National Government Expenditures and Related Policies
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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