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Optimal Government Expenditures on Production and Extraction Technologies in a Small Open Economy with a Non-renewable Natural Resource

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Listed:
  • Kamil Aliyev

    (Graduate School of Economics, Osaka University)

Abstract

This paper sets a small open economy model in which the government can raise the efficiencies of production and extraction of a non-renewable natural resource by spending the budget raised through income tax. Using this model, we examine the optimal government expenditure on the production technology and that on the extraction technology. The results are as follows. If revenue of natural resource is high, the optimal expenditure on the extraction technology is high, while the optimal expenditure on production technology is independent of the natural resource revenue. Moreover, if the ratio of the optimal expenditure for improvement of extraction technology to the resource revenue is higher (lower) than the optimal tax rate under the depletion of the natural resource, the optimal tax rate before the depletion is higher (lower) than that after the depletion.

Suggested Citation

  • Kamil Aliyev, 2024. "Optimal Government Expenditures on Production and Extraction Technologies in a Small Open Economy with a Non-renewable Natural Resource," Discussion Papers in Economics and Business 24-01, Osaka University, Graduate School of Economics.
    • Handle: RePEc:osk:wpaper:2401
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    References listed on IDEAS

    as
    1. Christian Groth & Poul Schou, 2002. "Can non-renewable resources alleviate the knife-edge character of endogenous growth?," Oxford Economic Papers, Oxford University Press, vol. 54(3), pages 386-411, July.
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    More about this item

    Keywords

    non-renewable natural resource; labor productivity; optimal tax; small open economy;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • Q32 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Exhaustible Resources and Economic Development

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