Harnessing Windfall Revenues: Optimal Policies for Resource‐Rich Developing Economies

Frederick (Rick) van der Ploeg and Anthony Venables

Economic Journal, 2011, vol. 121, issue 551, 1-30

Abstract: A windfall of natural resources (or aid) faces government with choices of how to manage public debt, investment and the distribution of funds for consumption. The permanent income hypothesis suggests a sustained increase in consumption supported, once resources are depleted, by interest on accumulated foreign assets. However, this strategy is not optimal for capital-scarce developing economies. Incremental consumption should be skewed towards present generations. Savings should be directed to accumulation of domestic private and public capital rather than foreign assets. Optimal policy depends on the impact of distortionary taxation and ability of consumers to borrow against future revenues.

Date: 2011
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http://hdl.handle.net/10.1111/j.1468-0297.2010.02411.x

Related works:
Working Paper: Harnessing windfall revenues: Optimal policies for resource-rich developing economies (2011)
Working Paper: Harnessing Windfall Revenues: Optimal Policies for Resource-Rich Developing Economies (2009)
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