Oil and Fiscal Policy Regimes

88 Pages Posted: 20 Jan 2021

See all articles by Hilde C. Bjørnland

Hilde C. Bjørnland

Norwegian School of Management (BI); Norges Bank

Roberto Casarin

University Ca' Foscari of Venice - Department of Economics

Marco Lorusso

Newcastle University Business School

Francesco Ravazzolo

Free University of Bozen-Bolzano

Date Written: January 20, 2021

Abstract

We analyse fiscal policy responses in oil rich countries by developing a Bayesian regimes-witching 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.

Keywords: Dynamic Panel Model, Mixed-Frequency, Markov Switching, Bayesian Inference, Fiscal Policy, Resource Rich Countries, Oil Prices

JEL Classification: C13, C14, C51, C53, E62, Q43

Suggested Citation

Bjørnland, Hilde C. and Casarin, Roberto and Lorusso, Marco and Ravazzolo, Francesco, Oil and Fiscal Policy Regimes (January 20, 2021). CAMA Working Paper No. 10/2021, Available at SSRN: https://ssrn.com/abstract=3769785 or http://dx.doi.org/10.2139/ssrn.3769785

Hilde C. Bjørnland

Norwegian School of Management (BI) ( email )

P.O. Box 580
N-1302 Sandvika
Norway

Norges Bank ( email )

P.O. Box 1179
Oslo, N-0107
Norway

Roberto Casarin

University Ca' Foscari of Venice - Department of Economics ( email )

San Giobbe 873/b
Venice, 30121
Italy
+39 030.298.91.49 (Phone)
+39 030.298.88.37 (Fax)

HOME PAGE: http://sites.google.com/view/robertocasarin

Marco Lorusso

Newcastle University Business School ( email )

5 Barrack Road
Devonshire Building
NEWCASTLE UPON TYNE, NE1 7RU
United Kingdom

Francesco Ravazzolo (Contact Author)

Free University of Bozen-Bolzano ( email )

Sernesiplatz 1
Bozen-Bolzano, BZ 39100
Italy

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