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The Sources of Fiscal Fluctuations

Author

Listed:
  • Antoine Levy
  • Mr. Luca A Ricci
  • Alejandro M. Werner

Abstract

This paper assesses the dynamic impact of global macroeconomic conditions, commodity price movements, shifts in portfolio preferences, and domestic shocks on fiscal outcomes—notably the budget deficit, its main components, and debt—across a wide range of countries. Heterogeneity is investigated across the level of development and other structural characteristics. Dynamics are explored via panel local projections, while robustness is assessed via dynamic panel and system GMM regressions. World growth, financial risk appetite, political events, and commodity export prices are key determinants of fiscal outcomes in EM, while domestic growth, commodity import prices, and banking crises appear to matter more in AE. Our estimates help quantify the amount of fiscal risk generated by various factors, and thus provide inputs for the design of potential insurance mechanisms or state-contingent debt instruments that could assist in smoothing fiscal fluctuations.

Suggested Citation

  • Antoine Levy & Mr. Luca A Ricci & Alejandro M. Werner, 2020. "The Sources of Fiscal Fluctuations," IMF Working Papers 2020/220, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2020/220
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    More about this item

    Keywords

    fiscal; deficit; debt; fluctuations; insurance; sovereign; WP; GDP ratio; expenditure ratio; standard deviation; terms of trade; commodity exporter; GDP effect; GDP-indexed bond; trade balance;
    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
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • H6 - Public Economics - - National Budget, Deficit, and Debt
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods

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