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Optimal fiscal management of commodity price shocks

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  • Agénor, Pierre-Richard

Abstract

This paper analyzes how low-income countries should optimally respond, through fiscal policy, to commodity price shocks. The model accounts for imperfect access to world capital markets and a variety of externalities associated with public infrastructure, including utility benefits, a direct complementarity effect with private investment, and reduced distribution costs. However, public capital is also subject to congestion and absorption constraints, with the latter affecting the efficiency of infrastructure investment. The optimal windfall allocation rule between spending today and asset accumulation is determined so as to minimize a social loss function defined in terms of the volatility of private consumption and either the nonresource primary fiscal balance or a more general index of macroeconomic stability, which accounts for the volatility of the real exchange rate.

Suggested Citation

  • Agénor, Pierre-Richard, 2016. "Optimal fiscal management of commodity price shocks," Journal of Development Economics, Elsevier, vol. 122(C), pages 183-196.
  • Handle: RePEc:eee:deveco:v:122:y:2016:i:c:p:183-196
    DOI: 10.1016/j.jdeveco.2016.05.005
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    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Optimal Fiscal Management of Commodity Price Shocks
      by Christian Zimmermann in NEP-DGE blog on 2015-01-15 04:22:17

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    2. Henry, Alexandre, 2019. "Transmission channels of the resource curse in Africa: A time perspective," Economic Modelling, Elsevier, vol. 82(C), pages 13-20.

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    More about this item

    Keywords

    Commodity price shocks; Public infrastructure; Sovereign funds; Open-economy DSGE models; Optimal resource windfall allocation;
    All these keywords.

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures

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