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

Kamil Aliyev ()
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Kamil Aliyev: Graduate School of Economics, Osaka University

No 24-01, Discussion Papers in Economics and Business from Osaka University, Graduate School of Economics

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.

Keywords: non-renewable natural resource; labor productivity; optimal tax; small open economy (search for similar items in EconPapers)
JEL-codes: H21 H54 O41 Q32 (search for similar items in EconPapers)
Pages: 10 pages
Date: 2024-01
New Economics Papers: this item is included in nep-env and nep-pbe
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