What are the determinants of procyclical government spending and how could it be made anti-cyclical - Economic Research Forum (ERF)

What are the determinants of procyclical government spending and how could it be made anti-cyclical

What are the determinants of procyclical government spending and how could it be made anti-cyclical

Jaime de Melo, former professor at the University of Geneva, chaired a parallel session focusing on fiscal policy during the ERF 24th Annual Conference.

 

 

In his words, the session was extremely important especially for MENA countries but also for African countries in general. Indeed, this is the part of the world where you have the most assets, that is natural resources; but at the same time, it is also one of the parts of the world where governance has had some problems. The discussion during the session aimed to try and see whether the natural resource curse is part of the procyclical problem. The procyclical problem entails that every time the terms of trade or the price of the main exports go up, so does government spending. However, the government spending goes up as the prices were going to stay high permanently – which is never been the case and probably won’t be the case in the future. So the issue is to see what are the determinants of this procyclical government spending and how could it be made anti-cyclical.

 

The session saw the presentation of two very interesting papers. The first one, titled Why Some Countries Can Escape the Fiscal Pro-Cyclicality Trap and Others Can’t, looked at 120 countries and compared procyclical government spending at the country and at the region level across two different periods of time. According to Prof. de Melo, the great thing about this study is that it can provide a generalized pattern.

 

The other paper, Delayed Fiscal Adjustment and National Competitiveness: Transmission Channels and Empirical Evidence, presented a different approach, focussing on one single country, Tunisia. This allowed to examine data much more detail, to try and see how the fiscal deficit government spending increased or changed during the during the economic cycle.

 

The Economic Research Forum’s 24th Annual Conference is held in Cairo, Egypt, on 8-10 July, 2018. The main theme of the plenary sessions is “The New Normal in the Global Economy: Challenges and Prospects for MENA”. The conference aims to draw on the lessons learned from the restructuring of the economic order across the region, particularly in light of the wide-ranging consequences of the decline in oil prices. With social turbulence and conflict persist in several MENA countries, the main goal is adequately reconciling short-term social and economic concerns with long-term growth and reform efforts. Visit the conference website to find out more about the event and access papers, videos and blogs.