A norm for a stabilizing budget policy in less developed export economies

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Abstract
The stabilization problem of an export economy is defined as smoothing the fluctuations in real income resulting from sharp changes in the value of exports. A stabilizing fiscal policy should be contractionary in good export years and expansionary in bad export years. A norm is developed to measure whether fiscal policy achieves this aim. The revenue impact of the budget is hypothesized to be generally stabilizing and the sample results bear out this hypothesis. However, the total fiscal impact is less clearly stabilizing, as expenditure policy may offset the revenue effect and tend to accentuate rather than smooth out fluctuations in real income.

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