Optimal fiscal management in an economy with resource revenue‐financed government‐linked companies

King Yoong Lim and Shuonan Zhang

International Journal of Finance & Economics, 2023, vol. 28, issue 2, 2202-2225

Abstract: We present a dynamic stochastic general equilibrium (DSGE) model in which a resource‐rich government allocates its excess resource rents between a resource stabilization fund and the facilitation of costly domestic fund‐raising activities of sovereign wealth funds (SWF), which holds a portfolio of government‐linked companies (GLCs). Despite being less productive efficient, GLCs' operation benefits from scale economies tied to the resource sector: its profitability is procyclical to commodity shocks. The model is estimated to Malaysia using the Bayesian approach, with the results suggesting a business cycle heavily influenced by resource shocks. Based on this, we solve numerically for a socially optimal combination of excess resource savings allocation. We find the present allocation to be sub‐optimal, regardless of the structural shocks. This suggests that the Malaysian economy might have hit its absorptive capacity constraint (i.e., a domestic economy saturated by GLCs).

Date: 2023
References: Add references at CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1002/ijfe.2533

Related works:
Working Paper: Commodity Shocks and Optimal Fiscal Management of Resource Revenue in an Economy with State-owned Enterprises (2020)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wly:ijfiec:v:28:y:2023:i:2:p:2202-2225

Ordering information: This journal article can be ordered from
http://jws-edcv.wile ... PRINT_ISSN=1076-9307

Access Statistics for this article

International Journal of Finance & Economics is currently edited by Mark P. Taylor, Keith Cuthbertson and Michael P. Dooley

More articles in International Journal of Finance & Economics from John Wiley & Sons, Ltd.
Bibliographic data for series maintained by Wiley Content Delivery ().