The Effects of Commodity Price Shocks on Fiscal Aggregates in Latin America

This paper analyzes the effects of commodity price shocks on fiscal revenues and expenditures in Latin American countries quarterly from 1995 to 2013. The results indicate that Latin American countries' fiscal aggregates rise in response to positive shocks to commodity prices, yet there are marked differences across countries. Fiscal variables in Venezuela display the highest sensitivity to commodity price shocks, with expenditures responding significantly more than revenues. At the other end of the spectrum, in Chile expenditures respond very little to commodity price fluctuations and the dynamic responses of its fiscal indicators are very similar to those seen in high-income commodity-exporting countries. The results suggest that this heterogeneity may relate to the enactment of fiscal rules, as dynamic panel estimations show that government expenditures in countries with fiscal rules respond less to shocks to commodity prices.