## Do Sovereign Wealth Funds Reduce Fiscal Policy Pro-cyclicality? New Evidence Using a Non-Parametric Approach

_IMF Working Papers, June 23, 2023_

## Source details

**Canonical URL:** [Do Sovereign Wealth Funds Reduce Fiscal Policy Pro-cyclicality? New Evidence Using a Non-Parametric Approach](https://www.imf.org/en/publications/wp/issues/2023/06/23/do-sovereign-wealth-funds-reduce-fiscal-policy-pro-cyclicality-new-evidence-using-a-non-534319)

## Other formats

- [Markdown version](/en/publications/wp/issues/2023/06/23/do-sovereign-wealth-funds-reduce-fiscal-policy-pro-cyclicality-new-evidence-using-a-non-534319/index.md)
- [Structured JSON version](/en/publications/wp/issues/2023/06/23/do-sovereign-wealth-funds-reduce-fiscal-policy-pro-cyclicality-new-evidence-using-a-non-534319/index.json)
- [Bundle manifest](/en/publications/wp/issues/2023/06/23/do-sovereign-wealth-funds-reduce-fiscal-policy-pro-cyclicality-new-evidence-using-a-non-534319/bundle-manifest.json)

## 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**
  - [Working Paper (Markdown version)](/-/media/files/publications/wp/2023/english/wpiea2023133-print-pdf.pdf.md){rel="alternate" type="text/markdown"}
  - [Working Paper (PDF)](/-/media/files/publications/wp/2023/english/wpiea2023133-print-pdf.pdf){rel="external" type="application/pdf"}

---

_Source: https://www.imf.org/en/publications/wp/issues/2023/06/23/do-sovereign-wealth-funds-reduce-fiscal-policy-pro-cyclicality-new-evidence-using-a-non-534319_