Fiscal spending in an oil rich economy

Abstract

In this thesis we investigate two matters concerning Norwegian scal policy. We rst assess the e ects of an oil revenue shock on mainland GDP and scal spending. Then we examine how discretionary scal spending a ects mainland GDP. This is done through an empirical SVAR analysis. Acknowledging that the e ects of scal policy depends on country characteristics, our SVAR model is built to t Norway, a small open and oil dependent economy with a unique scal framework. Our results make it clear that mainland GDP increases following a hike in government oil revenue and that scal spending has been more procyclical to oil revenue in our later sample, i.e., after the adoption of the scal spending rule. We show that discretionary scal spending has a positive, yet modest, short term e ect on Norwegian GDP. The results are robust for di erent speci cations of our SVAR model, as well as a proxy SVAR.