Title: Oil and fiscal policy: Panel regime-switching country analysis
Authors: Marco Lorusso - Newcastle University (United Kingdom) [presenting]
Francesco Ravazzolo - Free University of Bozen-Bolzano (Italy)
Roberto Casarin - University Ca' Foscari of Venice (Italy)
Hilde Bjornland - BI Norwegian Business School (Norway)
Abstract: The focus is on the response of government policy to oil price changes in a set of oil exporter countries. Our country sample consists of both advanced and developing economies. The main research questions are: (a) do oil price changes affect fiscal regimes of oil exporter countries? (b) what is the relationship between expensive/contractionary fiscal policies and oil price fluctuations? (c) do world oil production and global economic activity influence government policies of oil exporter countries? (d) what are the links between government spending, tax revenues, public and private employment and oil prices in these countries? As empirical framework we use a Bayesian panel model VAR for mixed frequency data whose parameters can change over time according to a Markov process. We believe that this approach presents several advantages. Firstly, we identify regimes depending on the property of the estimated parameters and avoid critiques about the identification of standard VARs with indirect methods such as a recursive scheme. Secondly, our empirical framework allows us to distinguish between countries adopting oil fiscal rules in order to shelter their economies and countries that increase their spending when their revenues are high. Finally, the flexibility of our model gives us the possibility to compare fiscal policies of a relative large set of countries that would not be possible adopting a standard VAR model.