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Rule-Based Resource Revenue Stabilization Funds: A Welfare Comparison

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  • Landon, Stuart

    (University of Alberta, Department of Economics)

  • Smith, Constance

    (University of Alberta, Department of Economics)

Abstract

Resource prices, and petroleum prices in particular, are volatile and difficult to predict, so government revenue in resource-producing regions is also uncertain and volatile. Adjusting government expenditure in response to these revenue movements involves economic, social and political costs. Many jurisdictions have established rule-based revenue stabilization funds to address revenue volatility, but there is little evidence on whether these funds improve welfare or if some fund designs increase welfare more than others. Using Monte Carlo techniques, we provide a quantitative welfare comparison of several types of rule-based stabilization funds for a petroleumproducing jurisdiction. We find large potential gains from the use of a fund to stabilize revenue, but some fund types reduce welfare, particularly those that accumulate large stocks of assets or debt. A fund that performs well, and is generally robust to changes in the simulation parameters, has a fixed deposit rate out of resource revenue and a fixed withdrawal rate out of assets.

Suggested Citation

  • Landon, Stuart & Smith, Constance, 2014. "Rule-Based Resource Revenue Stabilization Funds: A Welfare Comparison," Working Papers 2014-1, University of Alberta, Department of Economics.
    • Handle: RePEc:ris:albaec:2014_001
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    Cited by:

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    2. Mamipour, Siab & Yahoo, Masoud & Mahmoudi, Sahar, 2021. "Modeling for policy: Managing volatile oil windfalls in a resource-rich developing country," Resources Policy, Elsevier, vol. 74(C).
    3. Rick Van der Ploeg & Ton van den Bremer, 2016. "Saving Alberta’s Resource Revenues:," OxCarre Working Papers 179, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
    4. van der Ploeg, Frederick & ,, 2016. "Saving Alberta’s Resource Revenues: Role of Intergenerational and Liquidity Funds," CEPR Discussion Papers 11522, C.E.P.R. Discussion Papers.
    5. Wills, Samuel, 2018. "Leave the volatility fund alone: Principles for managing oil wealth," Journal of Macroeconomics, Elsevier, vol. 55(C), pages 332-352.
    6. van den Bremer, Ton S. & van der Ploeg, Frederick, 2016. "Saving Alberta's resource revenues: Role of intergenerational and liquidity funds," Energy Policy, Elsevier, vol. 99(C), pages 132-146.
    7. García-Albán, Freddy & González-Astudillo, Manuel & Vera-Avellán, Cristhian, 2021. "Good policy or good luck? Analyzing the effects of fiscal policy and oil revenue shocks in Ecuador," Energy Economics, Elsevier, vol. 100(C).
    8. AlKathiri, Nader & Atalla, Tarek N. & Murphy, Frederic & Pierru, Axel, 2020. "Optimal policies for managing oil revenue stabilization funds: An illustration using Saudi Arabia," Resources Policy, Elsevier, vol. 67(C).
    9. Zhandos Ybrayev & Olzhas Kubenbayev & Akylzhan Baimagambetov, 2024. "Macroeconomic effects of fiscal rules for a commodity-exporting economy: avoiding procyclical bias in Kazakhstan," Macroeconomics and Finance in Emerging Market Economies, Taylor & Francis Journals, vol. 17(2), pages 271-294, May.

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    More about this item

    Keywords

    petroleum prices; resource revenue volatility; fiscal rules; stabilization funds; savings funds;
    All these keywords.

    JEL classification:

    • H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • Q33 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Resource Booms (Dutch Disease)
    • Q38 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Government Policy (includes OPEC Policy)
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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