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Resource rents; when to spend and how to save

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  • Venables, Anthony J.

Abstract

Countries with substantial revenues from renewable resources face a complex range of revenue management issues. What is the optimal time profile of consumption from the revenue, and how much should be saved? Should saving be invested in foreign funds or in the domestic economy? How does government policy influence the private sector, where sustainable growth in the domestic economy must ultimately be generated? This paper develops the issues in a simple two-period model, and argues that analysis must go well beyond the simple permanent income approach sometimes recommended. In developing countries resource revenues relax constraints on the supplies of capital and of government funds. The level of saving should be somewhat lower than under the permanent income hypothesis because of the low income of the current generation. The composition of investment should be tilted to the domestic economy rather than foreign assets. Government prudence can be undermined by private sector expectations, so high levels of spending on public infrastructure may be appropriate as a commitment to invest.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7875.

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Date of creation: Jun 2010
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Handle: RePEc:cpr:ceprdp:7875

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Related research

Keywords: Natural resources; permanent income; resource curse; revenue management;

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  1. Kimball, Miles S, 1990. "Precautionary Saving in the Small and in the Large," Econometrica, Econometric Society, vol. 58(1), pages 53-73, January.
  2. Sambit Bhattacharyya & Roland Hodler, 2008. "Natural Resources, Democracy and Corruption," Department of Economics - Working Papers Series 1047, The University of Melbourne.
  3. Jan-Peter Olters, 2007. "Old Curses, New Approaches? Fiscal Benchmarks for Oil-Producing Countries in Sub-Saharan Africa," IMF Working Papers 07/107, International Monetary Fund.
  4. Bernard Gauthier & Albert Zeufack, 2010. "Governance and Oil Revenues in Cameroon," OxCarre Working Papers 038, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
  5. Paul Collier & Anthony J. Venables, 2010. "Natural Resources and State Fragility," RSCAS Working Papers 2010/36, European University Institute.
  6. Bernardin Akitoby & Thomas Stratmann, 2006. "Fiscal Policy and Financial Markets," IMF Working Papers 06/16, International Monetary Fund.
  7. Mauricio Villafuerte & Rolando Ossowski & Theo Thomas & Paulo A. Medas, 2008. "Managing the Oil Revenue Boom," IMF Occasional Papers 260, International Monetary Fund.
  8. Christopher Adam & Anthony Simpasa, 2010. "Harnessing Resource Revenues for Prosperity in Zambia," OxCarre Working Papers 036, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
  9. Timothy Besley & Torsten Persson, 2009. "The Incidence of Civil War: Theory and Evidence," STICERD - Economic Organisation and Public Policy Discussion Papers Series 005, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
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Cited by:
  1. Andrew Berg & Rafael Portillo & Shu-Chun S. Yang & Luis-Felipe Zanna, 2012. "Public Investment in Resource-Abundant Developing Countries," IMF Working Papers 12/274, International Monetary Fund.
  2. Frederick Ploeg, 2012. "Bottlenecks in ramping up public investment," International Tax and Public Finance, Springer, vol. 19(4), pages 509-538, August.
  3. Aaron Walker & Rod Tyers, 2013. "Quantifying Australia's "Three Speed" Boom," Economics Discussion / Working Papers 13-06, The University of Western Australia, Department of Economics.
  4. Robin Boadway & Michael Keen, 2014. "Rent Taxes and Royalties in Designing Fiscal Regimes for Non-Renewable Resources," CESifo Working Paper Series 4568, CESifo Group Munich.

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