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

Amany A. El Anshasy, Michael D. Bradley

    Research output: Contribution to journalArticlepeer-review

    70 Citations (Scopus)

    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.

    Original languageEnglish
    Pages (from-to)605-620
    Number of pages16
    JournalJournal of Policy Modeling
    Volume34
    Issue number5
    DOIs
    Publication statusPublished - Sep 2012

    Keywords

    • Fiscal policy
    • GMM
    • Oil prices
    • PMG

    ASJC Scopus subject areas

    • Economics and Econometrics

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