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

Keywords: Mongolia, copper price shock, government revenue, government expenditure, vector auto regression (VAR), Fiscal Stability Law (FSL)

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.

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Abstract
131
PDF
80
Published
2020-03-30
How to Cite
Bayarsaikhan, A. (2020). The Effect of Copper Price Shock on the Relationship between Government Revenue and Expenditure: Testing the Fiscal Stability Law of Mongolia. Proceedings of the Mongolian Academy of Sciences, 59(4), 27-33. https://doi.org/10.5564/pmas.v59i4.1294
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Articles