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Commodity Shocks and Optimal Fiscal Management of Resource Revenue in an Economy with State-owned Enterprises

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  • King Yoong Lim
  • Shuonan Zhang

Abstract

We present a dynamic model in which a resource-rich State allocates its resource revenue between a resource stabilization fund and investments in state-owned enterprises (SOEs). Despite being less productive efficient, SOEs' operation benefits from scale economies tied to the resource sector: its profitability is procyclical to commodity shocks. We identify analytically a threshold share of fiscal allocation to SOEs above which SOEs make non-zero profits. Based on a Bayesian-estimated model, we solve for an optimal resource revenue allocation between SOE investments and Resource Fund, and find the optimal share of SOE investment to be in the range of 9.0-12.9 percent.

Suggested Citation

  • King Yoong Lim & Shuonan Zhang, 2020. "Commodity Shocks and Optimal Fiscal Management of Resource Revenue in an Economy with State-owned Enterprises," NBS Discussion Papers in Economics 2020/02, Economics, Nottingham Business School, Nottingham Trent University.
  • Handle: RePEc:nbs:wpaper:2020/02
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    More about this item

    Keywords

    Commodity Shocks; Fiscal Management; Open-economy DSGE models; Resource Wealth; State-owned Enterprises.;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures

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