Essays on procyclicality of fiscal policy and natural resource funds

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2021-9

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Çiçekçi, Cumhur

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Fiscal policy in resource-rich economies, particularly with low institutional quality, faces some major challenges since their government expenditures depend on volatile resource income. Most of them have set up natural resource funds (NRFs) to clear away this dependency; however, the effectiveness of these funds is still under debate. Besides, large government expenditures financed by transfers from the funds are not sustainable and can entail serious risk for these economies. Hence, it is essential to investigate the effects of NRFs and determine the optimal resource windfalls allocation rule for resource-rich countries. The dissertation consists of two essays. The first essay investigates the effects of resource funds and the roles of institutional quality in mitigating ﬁscal procyclicality in 32 oil-rich economies from 1984 to 2015 using dynamic common correlated effect (DCCE) panel estimation techniques. It is found that NRFs can contribute to mitigate procyclicality of fiscal policy in economics which have high institutional quality. In the second essay, Dynamic Stochastic General Equilibrium (DSGE) model was applied to Azerbaijan to examine the macroeconomic effects of temporary resource production and price shocks and the optimal spending and saving of resource revenues. The result shows that full spending of resource revenues leads to the Dutch disease effect. By contrast, this effect is mitigated by saving all these revenues. It is also found that if the policy maker is equally concerned with fiscal stability and household welfare, at least 41 percent of resource revenue should be saved.

Subject Keywords

Fiscal Policy, Natural Resource Funds, Dynamic Common Correlated Effect, Institutional Quality, DSGE Model

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https://hdl.handle.net/11511/92892

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Graduate School of Social Sciences, Thesis

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Citation Formats

C. Çiçekçi, “Essays on procyclicality of fiscal policy and natural resource funds,” Ph.D. - Doctoral Program, Middle East Technical University, 2021.