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Fiscal Reactions to Anticipated Hydrocarbon Windfalls and Pension Burden: Is Norway's Stabilization Fund prudent enough?

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  • Torfinn Harding
  • Rick van der Ploeg

Abstract

We propose a framework for estimating forward-looking fiscal reaction functions for non-hydrocarbon tax and public spending shares and the deficit using official projections for hydrocarbon revenues and the burden of pensioners used by government agencies. We apply this framework to Norway and compare our estimates with permanent-income and bird-in-hand rules. We find that fiscal reactions have been partial forward-looking with respect to the rising pension bill, but backward-looking with respect to hydrocarbon revenues. The costs of a rapidly graying population are insufficiently taken into account in current fiscal rules, since Norway will go from a current net asset-GDP-ratio close to one into a net debt-GDP-ratio of two in 2060.

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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 027.

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Date of creation: 2009
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Handle: RePEc:oxf:oxcrwp:027

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Keywords: forward-looking fiscal reaction functions; permanent income hypothesis; oil windfall; sovereign wealth fund; graying population; pension bill; unsustainable public stance;

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