A comparison of fiscal rules for resource-rich economies

Roberto Iacono ()

Economic Analysis and Policy, 2017, vol. 55, issue C, 179-193

Abstract: This paper produces a normative evaluation of fiscal rules for a resource-rich economy. Ad hoc fiscal rules might imply substantial welfare costs; the goal is to analyze the magnitude of these costs by quantitatively evaluating the relative welfare sub-optimality of these rules. I posit a closed form solution for the infinite horizon consumption problem of the planner of a resource-rich economy with resource price uncertainty and precautionary saving. The model is subsequently calibrated and simulated to provide a welfare-based comparison between the fiscal rules based on the Permanent Income Hypothesis and on the ad hoc Bird-in-Hand policy. The results of the simulation indicate the presence of a positive and substantial welfare loss suffered from switching to the Bird-in-Hand rule. This result is shown to be robust under different parameterizations.

Keywords: Exhaustible resources; Precautionary saving; Fiscal rules (search for similar items in EconPapers)
JEL-codes: D9 H3 Q32 Q38 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Working Paper: Is it really worse with a Bird in Hand? A comparison of fiscal rules for resource-rich economies (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecanpo:v:55:y:2017:i:c:p:179-193

DOI: 10.1016/j.eap.2017.05.004

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