Do Sovereign Wealth Funds Reduce Fiscal Policy Pro-cyclicality? New Evidence Using a Non-Parametric Approach
IMF Working Papers, June 23, 2023
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- Do Sovereign Wealth Funds Reduce Fiscal Policy Pro-cyclicality? New Evidence Using a Non-Parametric Approach
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Bibliographic details
- Authors: Ali J Al-Sadiq, Diego Alejandro Gutiérrez
- Published: June 23, 2023
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798400244810.001
Overview
- Research question: Do stabilization Sovereign Wealth Funds (SWFs) reduce fiscal policy pro-cyclicality in commodity-exporting countries?
- Context: Heightened volatility of commodity prices in recent years, reflecting the effects of the pandemic and the war in Ukraine.
- Main conclusion: Using an unbalanced panel dataset for 182 countries during 1980-2019, with two econometric methods that address the selection-bias problem, the authors provide robust evidence that stabilization SWFs help smooth government consumption by reducing fiscal policy volatility associated with commodity price fluctuations.
- Authors and date: By Ali J Al-Sadiq, Diego Alejandro Gutiérrez; June 23, 2023.
Key findings
- Sample and period:
- Unbalanced panel dataset for 182 countries during 1980-2019.
- Empirical approach:
- Two econometric methods used that address the selection-bias problem (non-parametric / matching analysis).
- Core empirical result:
- Stabilization SWFs reduce fiscal policy volatility associated with commodity price fluctuations and help smooth government consumption.
- Nature of evidence:
- Described as robust given the dataset and methods employed.
Data and methods
- Dataset coverage:
- 182 countries, 1980-2019 (unbalanced panel).
- Econometric strategy:
- Two methods that address selection-bias; non-parametric approach and Matching Analysis (as listed in keywords).
- Outcome measured:
- Volatility of discretionary fiscal policy / fiscal policy pro-cyclicity as it relates to commodity price fluctuations.
Policy implications and relevance
- Policy tool evaluated:
- Stabilization Sovereign Wealth Fund (stabilization SWF) as a mechanism to minimize fiscal procyclicality.
- Practical implication:
- Establishing a stabilization SWF can help smooth government consumption in good and bad times for commodity-exporting countries exposed to volatile commodity prices.
- Relevance to current events:
- Findings are pertinent given recent commodity price volatility tied to the pandemic and the war in Ukraine.
Content in this bundle
- Working Paper