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Implementable Fiscal Rules for an Oil-Exporting Small Open Economy Facing Depletion

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  • Anamaria Pieschacon

Abstract

In this paper I compute implementable ?scal rules for a small open economy whose treasury is dependent on oil revenues and whose oil sector is shrinking. I model production in the oil and non oil sector and I analyze the e¤ects of implementing di¤erent sustainable ?scal rules in the context of a deteriorating oil sector. I assess the policy?s performance in terms of conditional and unconditional welfare. I show that rules that ?nance government purchases with structural revenue are preferred only if government purchases do not enter the utility function. Otherwise, when government purchases are complements with private consumption, depletion makes rules that ?nance government purchases with current revenue more attractive. Furthermore,the lower the sustainable level of oil extraction, the harder it is to reject a rule that ?nances government purchases with current oil revenue.

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Bibliographic Info

Paper provided by Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford in its series OxCarre Working Papers with number 019.

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Date of creation: 2008
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Handle: RePEc:oxf:oxcrwp:019

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Related research

Keywords: oil depletion; fiscal rules;

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References

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  1. Galí, Jordi & Monacelli, Tommaso, 2002. "Monetary Policy and Exchange Rate Volatility in a Small Open Economy," CEPR Discussion Papers 3346, C.E.P.R. Discussion Papers.
  2. Nooman Rebei & Hafedh Bouakez, 2004. "Why Does Private Consumption Rise After a Government Spending Shock?," Econometric Society 2004 North American Summer Meetings 417, Econometric Society.
  3. Mendoza, Enrique G. & Uribe, Martin, 2000. "Devaluation risk and the business-cycle implications of exchange-rate management," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 53(1), pages 239-296, December.
  4. Cooley, Thomas F & Quadrini, Vincenzo, 2001. "The Cost of Losing Monetary Independence: The Case of Mexico," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(2), pages 370-97, May.
  5. Barry J. Eichengreen & Tamim Bayoumi, 1994. "Restraining Yourself," IMF Working Papers 94/82, International Monetary Fund.
  6. Hartley, Peter & Medlock III, Kenneth B., 2008. "A model of the operation and development of a National Oil Company," Energy Economics, Elsevier, vol. 30(5), pages 2459-2485, September.
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Cited by:
  1. El Anshasy, Amany A. & Bradley, Michael D., 2012. "Oil prices and the fiscal policy response in oil-exporting countries," Journal of Policy Modeling, Elsevier, vol. 34(5), pages 605-620.

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