Are Developing Countries Better Off Spending Their Oil Wealth Upfront?

H. Takizawa, E. Gardner and Kenichi Ueda

No 2004/141, IMF Working Papers from International Monetary Fund

Abstract: We question the conventional view that it is optimal for government to maintain a stable level of spending out of oil wealth. We compare this conventional policy recommendation with one where government spends all of its oil revenues upfront, at the same rate as oil is extracted. Using a neoclassical growth model with positive external effects of public spending on consumption and productivity, we find that, if the economy is growing along the steady-state balanced path, the conventional view is validated. However, if the economy starts with a lower capital stock, the welfare ranking across two policies can be reversed.

Keywords: WP; capital stock; baseline economy; oil wealth; welfare comparison; public goods; goods rise; annuity policy; Consumption; Sustainable growth; Private consumption (search for similar items in EconPapers)
Pages: 29
Date: 2004-08-01
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Citations: View citations in EconPapers (28)

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