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A Commodity Curse? The Dynamic Effects of Commodity Prices on Fiscal Performance in Latin America

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  • Medina, Leandro

Abstract

The recent boom and bust in commodity prices has raised concerns about the impact of volatile commodity prices on Latin American countries’ fiscal positions. Using a novel quarterly dataset─ which includes unique country specific commodity price indices and a comprehensive measure of public expenditures─ this paper analyzes the dynamic effects of commodity price fluctuations on fiscal revenues and expenditures for 8 commodity exporting Latin American countries. The results indicate that Latin American countries’ fiscal positions generally react strongly to shocks to commodity prices, yet there are marked differences across countries in observed reactions. Fiscal variables in Venezuela display the highest sensitivity to commodity price shocks, with expenditures reacting significantly more than revenues. On the other side of the spectrum, Chile’s fiscal indicators react very little to commodity price fluctuations, and their dynamic responses are very similar to those seen in high-income commodity exporting countries. A plausible explanation to this distinct behavior across countries could be related to the efficient application of fiscal rules, accompanied by strong institutions, political commitment and high standards of transparency.

Suggested Citation

  • Medina, Leandro, 2010. "A Commodity Curse? The Dynamic Effects of Commodity Prices on Fiscal Performance in Latin America," MPRA Paper 21690, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:21690
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    File URL: https://mpra.ub.uni-muenchen.de/21690/1/MPRA_paper_21690.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Latin America; Emerging Economies; Commodity Prices; Fiscal Policy; Macroeconomics; Procyclicality; Procyclical; Dynamic Effects; Government Spending;
    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
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products

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