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Dutch natural Gas Revenues and Fiscal Policy: Theory versus Practice

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  • Peter Wierts
  • Guido Schotten
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    Abstract

    The Dutch government's revenues from natural gas fluctuate heavily and will dry up within several decades. According to the academic literature, only the permanent return on gas wealth should be included as income on the government's annual budget. This would prevent a deterioration in net wealth, and provide the budget with a stable source of income from which future generations can also benefit. On the basis of conservative estimates, it follows from our calculations that the Netherlands could count on a permanent annual flow of receipts of around 2.5 billion. In practice, however, gas revenues are included directly in the budget, while a part is reserved for investments via the Economic Structure Reinforcement Fund (Fonds Economische Structuurversterking). Using gas revenues for debt reduction, higher spending or lower taxes are political choices made anew by every new government. Our estimation results for the period 1975-2007 show that of a 1% of GDP rise/fall in gas revenues, 0.8 percentage point goes to easing/tightening policy and 0.2 percentage points to an increase/decrease of the budget balance. In the light of the recent fluctuations in oil and gas prices, preserving the stock of wealth from natural gas resources should become more important for the budgetary treatment of gas revenues in the Netherlands.

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    File URL: http://www.dnb.nl/en/binaries/OS6_tcm47-215137.pdf
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    Bibliographic Info

    Paper provided by Netherlands Central Bank, Research Department in its series DNB Occasional Studies with number 605.

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    Date of creation: Aug 2008
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    Handle: RePEc:dnb:dnbocs:605

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    1. Steven Barnett & Rolando Ossowski, 2002. "Operational Aspects of Fiscal Policy in Oil-Producing Countries," IMF Working Papers 02/177, International Monetary Fund.
    2. Henning Bohn, 1998. "The Behavior Of U.S. Public Debt And Deficits," The Quarterly Journal of Economics, MIT Press, vol. 113(3), pages 949-963, August.
    3. van der Ploeg, Frederick, 2006. "Challenges and Opportunities for Resource Rich Economies," CEPR Discussion Papers 5688, C.E.P.R. Discussion Papers.
    4. Peter Wierts, 2007. "The sustainability of euro area debt: a re-assessment," DNB Working Papers 134, Netherlands Central Bank, Research Department.
    5. H. Takizawa & E. H. Gardner & Kenichi Ueda, 2004. "Are Developing Countries Better Off Spending their Oil Wealth Upfront?," IMF Working Papers 04/141, International Monetary Fund.
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