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Resource rents; when to spend and how to save

  • Venables, Anthony J

Countries with substantial revenues from renewable resources face a complex range of revenue management issues. What is the optimal time profile of consumption from the revenue, and how much should be saved? Should saving be invested in foreign funds or in the domestic economy? How does government policy influence the private sector, where sustainable growth in the domestic economy must ultimately be generated? This paper develops the issues in a simple two-period model, and argues that analysis must go well beyond the simple permanent income approach sometimes recommended. In developing countries resource revenues relax constraints on the supplies of capital and of government funds. The level of saving should be somewhat lower than under the permanent income hypothesis because of the low income of the current generation. The composition of investment should be tilted to the domestic economy rather than foreign assets. Government prudence can be undermined by private sector expectations, so high levels of spending on public infrastructure may be appropriate as a commitment to invest.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7875.

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Date of creation: Jun 2010
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Handle: RePEc:cpr:ceprdp:7875
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  1. Mauricio Villafuerte & Rolando Ossowski & Theo Thomas & Paulo A. Medas, 2008. "Managing the Oil Revenue Boom; The Role of Fiscal Institutions," IMF Occasional Papers 260, International Monetary Fund.
  2. Sambit Bhattacharyya & Roland Hodler, 2008. "Natural Resources, Democracy and Corruption," Department of Economics - Working Papers Series 1047, The University of Melbourne.
  3. Timothy J. Besley & Torsten Persson, 2008. "The Incidence of Civil War: Theory and Evidence," NBER Working Papers 14585, National Bureau of Economic Research, Inc.
  4. Paul Collier & Anthony J Venables, 2009. "Natural Resources and State Fragility," OxCarre Working Papers 031, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
  5. Christopher Adam & Anthony Simpasa, 2010. "Harnessing Resource Revenues for Prosperity in Zambia," OxCarre Working Papers 036, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
  6. Kimball, Miles S, 1990. "Precautionary Saving in the Small and in the Large," Econometrica, Econometric Society, vol. 58(1), pages 53-73, January.
  7. Bernard Gauthier & Albert Zeufack, 2010. "Governance and Oil Revenues in Cameroon," OxCarre Working Papers 038, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
  8. Jan-Peter Olters, 2007. "Old Curses, New Approaches? Fiscal Benchmarks for Oil-Producing Countries in Sub-Saharan Africa," IMF Working Papers 07/107, International Monetary Fund.
  9. Bernardin Akitoby & Thomas Stratmann, 2006. "Fiscal Policy and Financial Markets," IMF Working Papers 06/16, International Monetary Fund.
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