Harnessing windfall revenues: Optimal policies for resource-rich developing economies
A windfall of natural resource revenue (or foreign aid) faces government with choices of how to manage public debt, investment, and the distribution of funds for consumption, particularly if the windfall is both anticipated and temporary.� Standard policy advice follows the permanent income hypothesis in suggesting a sustained increase in consumption supported by interest on accumulated foreign assets (a Sovereign Wealth Fund) once resource revenue are exhausted.� However, this strategy is not optimal for capital-scarce developing economies.� Incremental consumption should be skewed towards present generations, relative to those in the far future.� Savings should be directed to accumulation of domestic private and public capital rather than foreign assets.� Optimal policy depends on instruments available to government.� We study cases where the government can make lump-sum transfers to consumers; where such transfers are impossible so optimal policy involves cutting distortionary taxation in order to raise investment and wages; and where Ricardian consumers can borrow against future revenues so government only has indirect control of consumption.
|Date of creation:||01 Mar 2011|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.economics.ox.ac.uk/
More information through EDIRC
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.:
- Tabellini, Guido & Alesina, Alberto, 1990.
"A Positive Theory of Fiscal Deficits and Government Debt,"
3612769, Harvard University Department of Economics.
- Alesina, Alberto & Tabellini, Guido, 1990. "A Positive Theory of Fiscal Deficits and Government Debt," Review of Economic Studies, Wiley Blackwell, vol. 57(3), pages 403-14, July.
- Corden, W Max & Neary, J Peter, 1982. "Booming Sector and De-Industrialisation in a Small Open Economy," Economic Journal, Royal Economic Society, vol. 92(368), pages 825-48, December.
- 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.
- van Wijnbergen, Sweder J G, 1984. "The 'Dutch Disease': A Disease after All?," Economic Journal, Royal Economic Society, vol. 94(373), pages 41-55, March.
- Bernardin Akitoby & Thomas Stratmann, 2006.
"Fiscal Policy and Financial Markets,"
IMF Working Papers
06/16, International Monetary Fund.
- 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.
- Mahbub Morshed, A. K. M. & Turnovsky, Stephen J., 2004.
"Sectoral adjustment costs and real exchange rate dynamics in a two-sector dependent economy,"
Journal of International Economics,
Elsevier, vol. 63(1), pages 147-177, May.
- A.K.M. Mahbub Morshed & Stephen Turnovsky, 2003. "Sectoral Adjustment Costs and Real Exchange Rate Dynamics in a Two-Sector Dependent Economy," Working Papers UWEC-2002-17-P, University of Washington, Department of Economics, revised Jan 2003.
When requesting a correction, please mention this item's handle: RePEc:oxf:wpaper:543. 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: (Monica Birds)
If references are entirely missing, you can add them using this form.