Essays on Fiscal Policy in Oil-Exporting, Developing Countries
Open AccessThis dissertation attempts to explain the dynamics between movements in global oil prices and fiscal policy in oil-exporting, developing countries. It contains three essays. The first chapter investigates the correlation between government size and output volatility for a sample of oil-exporting, developing economies. Government spending relative to GDP is used as a proxy for the size of the government. The sample includes 27 countries over the period 1990-2017. Our contribution is the development of an empirical model that analyzes the role of government size in an interactive vector autoregression model where global oil price shocks are the primary source of volatility in output (and government spending). The results confirm the stabilizing role of the government. Next, government spending is decomposed into consumption and investment components. The results suggest that consumption expenditure acts as a stabilizer while public investment is destabilizing. Furthermore, a univariate Unobserved Components model is developed to decompose the oil price shocks into permanent and transient shocks, and the model is estimated using the Kalman filter. The results suggest that output volatility, which is driven by oil price shocks, is mainly due to permanent shocks.The second chapter introduces a novel approach to the identification of fiscal shocks by using fiscal spending forecast errors. The identification strategy exploits the correlation between global oil prices and business cycles in oil-exporting, developing economies to isolate the endogeneity in fiscal spending that is due to contemporaneous shocks, i.e., the expectational errors. In a sample of 27 oil-exporting, developing countries over the period 1990-2017, the spending multiplier is estimated to be around 0.4 (the cross-country average multiplier is 0.3). The results suggest that the multiplier effect is more significant during recessions. The results are robust to whether the transition function is defined based on the state of the economy or the state of the global oil market.The third chapter uses a dynamic general equilibrium model and modifies and calibrates it to the current Iranian context. Several scenarios are simulated to illustrate alternative fiscal policies and oil price paths. The results suggest that public investment scaling-up is viable under all scenarios. However, the size of fiscal adjustments required to accommodate a substantial investment front-loading is considerably larger than when a gradual or a conservative investment scaling-up approach is taken, and the outcome in terms of output growth is not much different from that of the gradual or the conservative approach. Structural reforms that improve the efficiency of public investment can increase the gains from an investment scaling-up while using an oil-fund is very helpful to reduce the size of fiscal adjustments, particularly if investment projects are to be carried out in spite of adverse global oil price shocks.
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SadeghiEmamgholi_gwu_0075A_14657.pdf | 2019-08-18 | Open Access |
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