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Fiscal Sustainability, Public Investment, and Growth in Natural Resource-Rich, Low-Income Countries

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  • Issouf Samaké
  • Priscilla S. Muthoora
  • Bruno Versailles
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    Abstract

    This paper assesses the implications of the use of oil revenue for public investment on growth and fiscal sustainability in Cameroon. We develop a dynamic stochastic general equilibrium model to analyze the effects of such investment on growth and on the path of key fiscal indicators, such as the non-oil primary deficit and public debt. Policy scenarios show that Cameroon’s large infrastructural needs and relatively low current debt levels could justify a temporary deviation from traditional policy advice that suggests saving part of the oil revenue to smooth expenditure over time. Model simulations show that a relatively high degree of efficiency of public investment is needed for scaled-up public investment to make a significant contribution to growth, while maintaining fiscal sustainability.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 13/144.

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    Length: 35
    Date of creation: 11 Jun 2013
    Date of revision:
    Handle: RePEc:imf:imfwpa:13/144

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    Keywords: Fiscal sustainability; Cameroon; Economic growth; Oil revenues; Fiscal policy; Public investment; Natural resources; Low-income developing countries; Economic models; DSGE; natural resource-rich countries; low-income countries; growth.; public debt; government spending; primary deficit; budget constraint; fiscal adjustment; public spending; tax rates; fiscal reaction function; public investment spending; fiscal policies; fiscal stance; primary expenditure; fiscal outcomes; fiscal revenue; revenue collection; capital expenditure; fiscal performance; tax base; government revenue; budget process; fiscal rule; fiscal rules; fiscal policy decisions; tax collection; fiscal reactions; government budget; fiscal strategy; fiscal policy formulation; foreign debt; fiscal criteria; budget balance; budgetary process; key fiscal indicators; fiscal surplus; public expenditure; tax revenue; medium-term fiscal strategy; fiscal space; fiscal authorities; long-term fiscal sustainability; fiscal effort; budget systems; fiscal frameworks; accumulation of arrears; government expenditure;

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    1. Marcos Poplawski-Ribeiro & Mauricio Villafuerte & Thomas Baunsgaard & Christine J. Richmond, 2012. "Fiscal Frameworks for Resource Rich Developing Countries," IMF Staff Discussion Notes 12/04, International Monetary Fund.
    2. Kwasi Fosu, Augustin & Getachew, Yoseph Yilma & Ziesemer, Thomas, 2011. "Optimal public investment, growth, and consumption: Evidence from African countries," MERIT Working Papers 051, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    3. Torfinn Harding & Frederick Van der Ploeg, 2009. "Is Norway's Bird-in-Hand Stabilization Fund Prudent Enough? Fiscal Reactions to Hydrocarbon Windfalls and Graying Populations," CESifo Working Paper Series 2830, CESifo Group Munich.
    4. Sanjeev Gupta & Alvar Kangur & Abdoul Aziz Wane & Chris Papageorgiou, 2011. "Efficiency-Adjusted Public Capital and Growth," IMF Working Papers 11/217, International Monetary Fund.
    5. Joel E. Cohen, 2010. "Beyond Population: Everyone Counts in Development," Working Papers, Center for Global Development 220, Center for Global Development.
    6. Canova, Fabio & Sala, Luca, 2009. "Back to square one: Identification issues in DSGE models," Journal of Monetary Economics, Elsevier, Elsevier, vol. 56(4), pages 431-449, May.
    7. Reinhart, Carmen & Rogoff, Kenneth, 2010. "Growth in a Time of Debt," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7661, C.E.P.R. Discussion Papers.
    8. Barro, Robert J., 1990. "Government Spending in a Simple Model of Endogeneous Growth," Scholarly Articles 3451296, Harvard University Department of Economics.
    9. Jordi GalÌ & Roberto Perotti, 2003. "Fiscal policy and monetary integration in Europe," Economic Policy, CEPR;CES;MSH, CEPR;CES;MSH, vol. 18(37), pages 533-572, October.
    10. Plamen Iossifov & Misa Takebe & Zaijin Zhan & Noriaki Kinoshita & Robert C. York, 2009. "Improving Surveillance Across the Cemac Region," IMF Working Papers 09/260, International Monetary Fund.
    11. AREZKI Rabah & DUPUY Arnaud & GELB Alan, 2013. "Resource Windfalls, Optimal Public Investment and Redistribution: The Role of Total Factor Productivity and Administrative Capacity," CEPS/INSTEAD Working Paper Series 2013-12, CEPS/INSTEAD.
    12. Frederick Ploeg, 2012. "Bottlenecks in ramping up public investment," International Tax and Public Finance, Springer, Springer, vol. 19(4), pages 509-538, August.
    13. 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.
    14. Reinhart, Carmen & Rogoff, Kenneth, 2010. "Debt and Growth Revisited," MPRA Paper 24376, University Library of Munich, Germany.
    15. Charles R. Hulten, 1996. "Infrastructure Capital and Economic Growth: How Well You Use It May Be More Important Than How Much You Have," NBER Working Papers 5847, National Bureau of Economic Research, Inc.
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