Structural Budget Frameworks and the Resource Curse

Abstract

One of the principal symptoms of the Resource Curse that has plagued commodity-exporters is a pro-cyclical fiscal policy—overspending in booms and austerity in recessions. In this paper, I explore the Resource Curse phenomena and highlight structural budget frameworks ("SBF") as a means to counter pro-cyclicality. I show evidence of Chile's success in using an SBF to reduce pro-cyclical spending and present a political economy rationale explaining why SBFs are effective. I argue that SBFs can be implemented successfully in much of the developing world, and contend that SBFs can avoid the contemporary faltering of other commonly-employed fiscal rules.