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Temporary windfalls and compensation arrangements

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  • Balassa, Bela

Abstract

Sharp fluctuations in the export prices of a major staple commodity can have jarring effects on economic activity. To reduce these undesirable effects and at the same time, increase the government's share in the proceeds of the booming sector, developing countries can funnel the revenue from higher export earnings into a special compensation fund. The fund works by setting up a variable export levy somewhere between the actual export price and an agreed-upon base, and the government appropriates the windfall revenues. In a downturn, the fund pays producers the base price. This paper accordingly examines the case for establishing compensation arrangements and the forms they may take. As an introduction to the discussion, considerations introduced in regard to permanent and temporary windfalls will be reviewed, followed by a brief analysis of the experience of several countries with temporary windfalls such as Chile and Cameroon.

Suggested Citation

  • Balassa, Bela, 1988. "Temporary windfalls and compensation arrangements," Policy Research Working Paper Series 28, The World Bank.
    • Handle: RePEc:wbk:wbrwps:28
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    References listed on IDEAS

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    1. Newbery, David M, 1989. "The Theory of Food Price Stabilisation," Economic Journal, Royal Economic Society, vol. 99(398), pages 1065-1082, December.
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