Oil-Shocks and the Cyclicality of Fiscal Policy in a Developing Oil-Exporting Economy: The Case of Angola

26 Pages Posted: 15 Jan 2018 Last revised: 13 Jul 2018

Alexandre Ernesto da Costa Antonio

Departament of Applied Social Sciences, Polytechnic Institute of Technology and Science (ISPTEC)

Antonio Rodriguez Gil

University of Leeds - Leeds University Business School (LUBS)

Date Written: January 11, 2018

Abstract

The aim of this paper is to assess the cyclicality of fiscal policy, its evolution over time and the effectiveness of fiscal rules in Angola, the second oil producer in Africa. Existing literature suggests that fiscal policy in commodity-exporting economies has become less pro-cyclical in the last decade, or at least has remained unchanged. Oil-exporting economies seem to be the exception to this pattern, and pro-cyclicality has increased even when fiscal rules to prevent it have been introduced. However, available evidence for oil-producers is based in findings for developed economies, such as, Norway, and not developing economies, despite their share of Global oil production. Our paper contributes to bridge this gap by assessing cyclicality, its time path, and the role of fiscal institutions that aim to reduce it, in a developing oil-rich economy, Angola. For this purpose we use time-varying techniques (rolling cointegration and VECM) to analyse previously unpublished data for the period 2004M1-2014M12. Our findings suggest that fiscal policy tends to be pro-cyclical to oil-shocks and that this has intensified after the 2007/8 Global Crisis. Further, we find that adjustment to long-run budget imbalances are achieved through revenue, rather than spending. Finally, we find that fiscal rules, such as, the Oil Price Differential Account or the Sovereign Wealth Fund have not been effective to tame this pro-cyclicality.

Keywords: Oil-Shocks, Fiscal Policy Cyclicality, Development, Time-Varying

JEL Classification: C32, H20, H50, O13, O23

Suggested Citation

da Costa Antonio, Alexandre Ernesto and Rodriguez Gil, Antonio, Oil-Shocks and the Cyclicality of Fiscal Policy in a Developing Oil-Exporting Economy: The Case of Angola (January 11, 2018). Leeds University Business School Working Paper No. 18-08. Available at SSRN: https://ssrn.com/abstract=3100172 or http://dx.doi.org/10.2139/ssrn.3100172

Alexandre Ernesto Da Costa Antonio

Departament of Applied Social Sciences, Polytechnic Institute of Technology and Science (ISPTEC) ( email )

Av. Luand Sul, Rua Lateral, Via S10
Talatona
Luanda, Luanda 2050
Angola

HOME PAGE: http://www.isptec.co.ao/pt

Antonio Rodriguez Gil (Contact Author)

University of Leeds - Leeds University Business School (LUBS) ( email )

Leeds LS2 9JT
United Kingdom

Register to save articles to
your library

Register

Paper statistics

Downloads
57
rank
339,816
Abstract Views
429
PlumX