The Real Exchange Rate and the Fiscal Aspects of a Natural Resource Discovery

Francesco Giavazzi (), Jeffrey Sheen and Charles Wyplosz

Oxford Economic Papers, 1988, vol. 40, issue 3, 427-50

Abstract: When natural resource income is appropriated by the government, the re arises the issue of the use made of this income. While the "Dutch disease" literature considers the intratemporal allocative issues, this paper focuses the intertemporal aspects implied by the exhaustibility of natural resources. Three main cases are considered: the government can use its resources to either reduce taxes, step up public spending, or reduce its indebtedness. These options are shown to have markedly contrasted effects on the exchange rate and the current account, both temporaril y and permanently. Copyright 1988 by Royal Economic Society.

Date: 1988
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