Why higher fiscal spending persists when a boom in primary commodities ends
After the initial boom in fiscal spending that accompanies a commodity boom, why do commodity- exporting countries tend to maintain higher spending levels despite a drop in commodity prices? Probably because of liquidity constraints and the costs of policy reversal.
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accompanies a commodity April 1994 April assume Bellman equation borrowing constraint Bruno Boccara Burkina Faso Cameroon capital stock CFA Franc characterize the environment commodity boom commodity bust commodity prices constraint is binding Cote d'lvoire countries in Africa Cuddington developing countries disinvestment or policy economy envelope theorem equation 11 error term estimation data set example expected cost first-order condition fiscal policy optimizing Fiscal Spending Persists Franc Zone countries functional form government expenditures government revenues government spending government's Higher Fiscal Spending indicator functions instrumental variables level of spending limited indebtedness constraint limited indebtedness effect liquidity constraints logarithm of government magnitude obtain parameter estimates period permanent income hypothesis permanent income theory Policy Research policy reversal effect pressure to spend Primary Commodities Ends primary commodities exporter rational expectations real net foreign Research Working Paper residuals Senegal spend effect Stanley Fischer stochastic process three effects unconstrained Euler equation wealth variable World Bank zero