The Effect of Copper Price Shock on the Relationship between Government Revenue and Expenditure: Testing the Fiscal Stability Law of Mongolia

Ariungerel Bayarsaikhan

doi:10.5564/pmas.v59i4.1294

Abstract

This study empirically investigates the relationship between government revenue, government expenditure and the copper price in Mongolia, a resource abundant country. Using quarterly data of government revenue, expenditure and international copper price from 2000 to 2015, the results of auto regression (VAR) show that there is a strong causality from revenue to expenditure, while increase in expenditure, most likely, is not accompanied by rises in revenue. This result is consistent with the revenue-spent hypothesis. Moreover, the result also indicates that copper price shock increases revenue, but decreases expenditure. This finding supports the assumption that the Mongolian government follows its Fiscal Stability Law, a strategy that intends to maintain the stability and sustainability of the government budget.

Highlights

The global financial crisis in 2008 is a metal by mankind for more than 10,000 years. clear example of the negative price shock on the
As regards the Model to test the effects of copper price on GDP, government revenue and government expenditure in Mongolia, this researcher adopted the VAR framework that was developed by Sims [20]
Due to the large share of copper export in the country’s GDP, it has become a crucial issue to study the effect of copper price shock on the fiscal outcomes

Summary

Introduction

The global financial crisis in 2008 is a metal by mankind for more than 10,000 years. clear example of the negative price shock on the. According to the Budget electronics and wirings, power generation and Report of Mongolia (2011), as the copper price transmission, and construction and dropped, causing copper revenue to tumble, the manufacturing, indicates the significant role real exchange rate depreciated against the US copper plays in the improvement of our dollar, which led to a shrinking of the foreign individual lives, and in global economic reserve fund by 50 percent. [3] As a result, the its price, generating positive and negative government took external loans of 400 million shocks to the fiscal outcomes of some copper dollars to finance its expenditure. The purpose of that law is to promote and develop economic growth by generating financial savings from mining windfalls and limit the expenditure growth by restricting fiscal budget to a deficit of no more than 2 percent of GDP. The purpose of that law is to promote and develop economic growth by generating financial savings from mining windfalls and limit the expenditure growth by restricting fiscal budget to a deficit of no more than 2 percent of GDP. [6]

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Conclusion