Do Fiscal Rules Foster Fiscal Discipline in Resource-Rich Countries?

By Ablam Estel Apeti, Olivier Basdevant, Veronique Salins

April 29, 2023

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Ablam Estel Apeti, Olivier Basdevant, and Veronique Salins. Do Fiscal Rules Foster Fiscal Discipline in Resource-Rich Countries?, (USA: International Monetary Fund, 2023) accessed November 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

This paper investigates the performance of fiscal rules in resource-rich countries (RRC). Using panel data for 57 commodity exporting countries from 1976 to 2021, we find that fiscal rules: (i) reduce the procyclicality of real public expenditures with terms of trade in oil exporting countries, and (ii) improve non-resource primary balances in all RRC, especially during terms of trade upturns. The rules’ design matters. Addressing the procyclicality of public expenditures with terms-of-trade can be achieved with expenditure rules, and, for oil-exporters, revenue rules (althoug limited data on the latter calls for taking the results cautiously). To improve non-resource fiscal balances, debt rules and fiscal balance rules are shown to have a positive impact, especially in oil exporting countries. We further investigate the effect of fiscal rules and other features of the fiscal framework through case studies (for Botswana, Mongolia, and Timor-Leste). These cases highlight that even when fiscal rules are not fully complied with, they lead to some degree of fiscal discipline. The case studies also highlight the importance of the quality of fiscal frameworks: frequent revisions, lack of compliance or low stringency of the rules can significantly hamper their effectiveness.

Subject: Economic sectors, Expenditure, Financial crises, Fiscal policy, Fiscal rules, Fiscal stance, International trade, Oil exports, Terms of trade

Keywords: Debt rule, Design matter, Expenditure rule, Fiscal rules, Fiscal stance, Forecasting commodity price, Global, Oil exporter, Oil exports, Revenue rule, Terms of trade

Publication Details

Pages:

37
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2023/088
Stock No:

WPIEA2023088
ISBN:

9798400240584
ISSN:

1018-5941

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