Optimal Fiscal Policy with Oil Revenues

Rouhollah Shahnazi, Mohsen Renani, Rahim Dalali Esfahani, Rahman Khoshakhlagh and Mohamad Vaez
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Rouhollah Shahnazi: Ph.D. Candidate, Department of Economic, Faculty of Administrative Sciences and Economics, University of Isfahan
Mohsen Renani: Associate Professor, Department of Economic, Faculty of Administrative Sciences and Economics, University of Isfahan
Rahim Dalali Esfahani: Associate Professor, Department of Economic, Faculty of Administrative Sciences and Economics, University of Isfahan
Rahman Khoshakhlagh: Professor, Department of Economic, Faculty of Administrative Sciences and Economics, University of Isfahan
Mohamad Vaez: Assistant Professor, Department of Economic, Faculty of Administrative Sciences and Economics, University of Isfahan

Iranian Economic Review (IER), 2011, vol. 16, issue 2, 73-88

Abstract: This paper focuses on the impacts of oil revenues on government fiscal policy when we have externality of human capital in economic. Therefore, we devised a fiscal policy capable to make the decentralized economy to achieve the first-best equilibrium in the Uzawa-Lucas model. The results of this paper show that optimal policy requires making use of a subsidy to investment in human and physical capital. Human capital can be financed by oil revenues and tax on labor income and physical capital can be financed by oil revenues. Government size dependent to oil revenues: When share of oil revenue in GDP or ratio of oil revenue in physical capital increase, government size increases and conversely. The results show the return on the physical capital must be free of taxes, but tax on labor income needed to balance the government budget in the steady state or in the transitional phase.

Keywords: Optimal fiscal policy; Natural resources; Endogenous growth (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eut:journl:v:16:y:2011:i:2:p:73

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