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Optimal fiscal strategy for oil exporting countries

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  • Engel, Eduardo
  • Valdés, Rodrigo O.

Abstract

This paper develops simple guidelines for fiscal policy in oil producing countries, focusing on three issues: intergenerational oil distribution, precautionary saving, and adjustment costs. The paper presents a framework to analyze how the revenue generated by an exhaustible source of wealth that belongs to the government should be distributed between current and future generations. This framework is used to show the strengths and limitations of existing answers, which motivates a new approach for dealing with this question. The paper derives simple, closed form approximations to the optimal level of government expenditure when an important part of government revenue is generated by an uncertain and exhaustible natural resource such as oil. Price uncertainty, budget uncertainty, and the (possibly asymmetric) costs of adjusting expenditure levels are considered.
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Suggested Citation

  • Engel, Eduardo & Valdés, Rodrigo O., 2001. "Optimal fiscal strategy for oil exporting countries," Sede de la CEPAL en Santiago (Estudios e Investigaciones) 34818, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
  • Handle: RePEc:ecr:col093:34818
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    File URL: http://repositorio.cepal.org/handle/11362/34818
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    References listed on IDEAS

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    1. Barro, Robert J, 1979. "On the Determination of the Public Debt," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 940-971, October.
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