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Consequences of lower oil prices and stranded assets for Russia's sustainable fiscal stance

Aleksandra Malova and Frederick (Rick) van der Ploeg ()

Energy Policy, 2017, vol. 105, issue C, 27-40

Abstract: Despite substantial oil and gas revenue Russia's fiscal stance is unsustainable. Under our benchmark assumptions the permanent-income rule requires a permanent tightening of the fiscal stance by 4.6%-points of GDP. Delaying it by a decade implies that the fiscal stance needs to be tightened by a further 0.9%-point. This benchmark optimal policy ensures that depletion of oil and gas wealth is matched by an equal increase in above-ground financial wealth. Its merits are highlighted by comparing it with the tougher alternative of the bird-in-hand rule and with projecting the current fiscal stance. If oil and gas revenue rises by a half due to higher prices or more discoveries, the fiscal stance needs to be tightened by only 3.2%-points of GDP. However, if a large chunk of oil and gas has to be kept in the soil to meet international agreements to keep global warming below 2°C, the permanent transfer drops to 2.0% of GDP and the fiscal stance needs to be tightened by 5.5%-points of GDP.

Keywords: H20; H63; Q33; Managing oil and gas revenues; Sustainable fiscal stance; Permanent income rule; Hartwick rule; Bird-in-hand rule; Stranded assets (search for similar items in EconPapers)
Date: 2017
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Handle: RePEc:eee:enepol:v:105:y:2017:i:c:p:27-40