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Oil and Fiscal Policy Regimes

Author

Listed:
  • Hilde Christiane Bjørnland
  • Roberto Casarin
  • Marco Lorusso
  • Francesco Ravazzolo

Abstract

We analyse fiscal policy responses in oil rich countries by developing a Bayesian regime-switching panel country analysis. We use parameter restrictions to identify procyclical and countercyclical fiscal policy regimes over the sample in 23 OECD and non-OECD oil producing countries. We find that fiscal policy is switching between pro- and countercyclial regimes multiple times. Furthermore, for all countries, fiscal policy is more volatile in the countercyclical regime than in the procyclical regime. In the procyclical regime, however, fiscal policy is systematically more volatile and excessive in the non-OECD (including OPEC) countries than in the OECD countries. This suggests OECD countries are able to smooth spending and save more than the non-OECD countries. Our results emphasize that it is both possible and important to separate a procyclical regime from a countercyclical regime when analysing fiscal policy. Doing so, we have encountered new facts about fiscal policy in oil rich countries.

Suggested Citation

  • Hilde Christiane Bjørnland & Roberto Casarin & Marco Lorusso & Francesco Ravazzolo, 2020. "Oil and Fiscal Policy Regimes," Working Papers No 11/2020, Centre for Applied Macro- and Petroleum economics (CAMP), BI Norwegian Business School.
  • Handle: RePEc:bny:wpaper:0094
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    File URL: https://hdl.handle.net/11250/2722610
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    Other versions of this item:

    • Hilde C. Bjørnland & Roberto Casarin & Marco Lorusso & Francesco Ravazzolo, 2021. "Oil and fiscal policy regimes," CAMA Working Papers 2021-10, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.

    References listed on IDEAS

    as
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    7. Mr. Alfredo Baldini, 2005. "Fiscal Policy and Business Cycles in an Oil-Producing Economy: The Case of Venezuela," IMF Working Papers 2005/237, International Monetary Fund.
    8. Anonymous, 1960. "International Monetary Fund," International Organization, Cambridge University Press, vol. 14(4), pages 668-669, October.
    9. International Monetary Fund, 2012. "Mexico: Staff Report for the 2012 Article IV Consultation," IMF Staff Country Reports 2012/316, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Dynamic Panel Model; Mixed-Frequency; Markov Switching; Bayesian Inference; Fiscal Policy; Resource Rich Countries; Oil Prices;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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