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Government resource revenues, fiscal policy and precautionary saving

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  • Øystein Thøgersen

Abstract

This paper explains counterintuitive effects of a tax cut on current consumption in a small open economy where the government is endowed with an uncertain resource wealth. Depending on fiscal policy and the extraction path of the resource, different generations face different risks regarding their tax burden, and this affects private saving. The effect of a one-period tax cut followed by tax increases in order to stabilize the expected government wealth depends on whether the tax cut is financed by intensified resource extraction. This triggers increased precautionary saving which may offset the wealth effect of the tax policy on the consumption of present generations.

Suggested Citation

  • Øystein Thøgersen, 1997. "Government resource revenues, fiscal policy and precautionary saving," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 6(3), pages 377-391.
    • Handle: RePEc:taf:jitecd:v:6:y:1997:i:3:p:377-391
    DOI: 10.1080/09638199700000022
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    References listed on IDEAS

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