Optimal Fiscal Strategy for Oil Exporting Countries

Rodrigo Valdés and Eduardo Engel

No 2000/118, IMF Working Papers from International Monetary Fund

Abstract: This paper develops simple guidelines for fiscal policy in oil producing countries, focusing on three issues: intergenerational oil distribution, precautionary saving, and adjustment costs. The paper presents a framework to analyze how the revenue generated by an exhaustible source of wealth that belongs to the government should be distributed between current and future generations. This framework is used to show the strengths and limitations of existing answers, which motivates a new approach for dealing with this question. The paper derives simple, closed form approximations to the optimal level of government expenditure when an important part of government revenue is generated by an uncertain and exhaustible natural resource such as oil. Price uncertainty, budget uncertainty, and the (possibly asymmetric) costs of adjusting expenditure levels are considered.

Keywords: WP; private income; random walk; stabilization fund; convenience yield; spot price; Fiscal Policy; oil exporting countries; stabilization funds; adjustment cost; oil income; income uncertainty; consumption path; price process; Consumption; Income; Oil prices; Oil (search for similar items in EconPapers)
Pages: 71
Date: 2000-06-01
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Citations: View citations in EconPapers (49)

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Related works:
Working Paper: Optimal fiscal strategy for oil exporting countries (2001)
Working Paper: Optimal Fiscal Strategy for Oil Exporting Countries (2000)
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