Catch-Up Growth, Habits, Oil Depletion, and Fiscal Policy; Lessons from the Republic of Congo
In a number of oil producing countries, oil revenue accounts for the majority of government revenue, but is expected to be depleted in a relatively short time frame. Ensuring that fiscal policy is on a sustainable path is thus a high priority, but political and social adjustment costs create incentives to delay fiscal consolidation. This paper estimates how the permanently sustainable non-oil primary deficit (PSNOPD) depends on the speed of consolidation, using an optimization model with habit formation. Realism is added by allowing for negative growth-adjusted interest rates during a temporary period of catch-up growth. Applied to the Republic of Congo, this approach leads to the following conclusions: (i) the current fiscalpolicy stance is unsustainable; (ii) social adjustment costs justify spreading the bulk of the adjustment over five years; and (iii) the slower the adjustment, the lower the PSNOPD level.
|Date of creation:||01 Apr 2007|
|Contact details of provider:|| Postal: International Monetary Fund, Washington, DC USA|
Phone: (202) 623-7000
Fax: (202) 623-4661
Web page: http://www.imf.org/external/pubind.htm
More information through EDIRC
|Order Information:||Web: http://www.imf.org/external/pubs/pubs/ord_info.htm|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Xavier Sala-i-Martin & Arvind Subramanian, 2013.
"Addressing the Natural Resource Curse: An Illustration from Nigeria,"
Journal of African Economies,
Centre for the Study of African Economies (CSAE), vol. 22(4), pages 570-615, August.
- Xavier Sala-i-Martín & Arvind Subramanian, 2003. "Addressing the natural resource curse: An illustration from Nigeria," Economics Working Papers 685, Department of Economics and Business, Universitat Pompeu Fabra.
- Arvind Subramanian & Xavier Sala-i-Martin, 2003. "Addressing the Natural Resource Curse; An Illustration From Nigeria," IMF Working Papers 03/139, International Monetary Fund.
- Xavier Sala-i-Martin & Arvind Subramanian, 2003. "Addressing the Natural Resource Curse: An Illustration from Nigeria," NBER Working Papers 9804, National Bureau of Economic Research, Inc.
- Oya Celasun & Xavier Debrun & Jonathan D. Ostry, 2006. "Primary Surplus Behavior and Risks to Fiscal Sustainability in Emerging Market Countries: A "Fan-Chart" Approach," IMF Staff Papers, Palgrave Macmillan, vol. 53(3), pages 1-3.
- Oya Celasun & Xavier Debrun & Jonathan David Ostry, 2006. "Primary Surplus Behavior and Risks to Fiscal Sustainability in Emerging Market Countries; A "Fan-Chart" Approach," IMF Working Papers 06/67, International Monetary Fund.
- Alonso A Segura Vasi, 2006. "Management of Oil Wealth Under the Permanent Income Hypothesis; The Case of São Tomé and Príncipe," IMF Working Papers 06/183, International Monetary Fund.
- Christopher Carroll, 2002. "'Risky Habits' and the Marginal Propensity to Consume Out Of Permanent Income," Computing in Economics and Finance 2002 42, Society for Computational Economics.
- Dhaneshwar Ghura & Rina Bhattacharya, 2006. "Oil and Growth in the Republic of Congo," IMF Working Papers 06/185, International Monetary Fund.
- Gunnar Tersman, 1991. "Oil, National Wealth, and Current and Future Consumption Possibilities," IMF Working Papers 91/60, International Monetary Fund.
- H. Takizawa & E. H. Gardner & Kenichi Ueda, 2004. "Are Developing Countries Better Off Spending Their Oil Wealth Upfront?," IMF Working Papers 04/141, International Monetary Fund.
- Jeffrey C. Fuhrer, 2000. "Habit Formation in Consumption and Its Implications for Monetary-Policy Models," American Economic Review, American Economic Association, vol. 90(3), pages 367-390, June.
- Jan-Peter Olters & Daniel Leigh, 2006. "Natural-Resource Depletion, Habit Formation, and Sustainable Fiscal Policy; Lessons from Gabon," IMF Working Papers 06/193, International Monetary Fund. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:imf:imfwpa:07/80. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jim Beardow)or (Hassan Zaidi)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.