Rethinking Fiscal Policy in Oil-Exporting Countries

May 17, 2019

Preview Citation

Format: Chicago

Tokhir N Mirzoev, and Ling Zhu. Rethinking Fiscal Policy in Oil-Exporting Countries, (USA: International Monetary Fund, 2019) accessed November 23, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

We examine the existing fiscal policy paradigm in commodity-exporting countries. First, we argue that its centerpiece—the permanent income hypothesis (PIH)—is not consistent with either intergenerational equity or long-term sustainability in the presence of uncertainty. Policies to achieve these goals need to be more prudent and better anchored than the PIH. Second, we point out the presence of a volatility tradeoff between government spending and wealth and re-assess long-held views on the appropriate fiscal anchors, the vice of procyclicality, and the (im)possibility of simultaneously smoothing consumption and ensuring intergenerational equity and sustainability. Finally, we propose what we call a prudent wealth stabilization policy that would be more consistent with long-term fiscal policy goals, yet relatively simple to implement and communicate.

Subject: Consumption, Expenditure, Financial institutions, Fiscal policy, National accounts, Oil prices, Prices, Stocks

Keywords: Consumption, Fiscal policy, Fiscal rules, Government spending, Interest rate, Level of wealth, Oil exporters, Oil price shock, Oil prices, Oil wealth, Permanent income hypothesis, Physical capital, PIH expenditure benchmark, PIH Policy, Spending policy, Stocks, Subsoil wealth, Target path, Targeted wealth, Wealth dynamics, Wealth stabilization, Wealth target, WP

Publication Details

Pages:

41
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2019/108
Stock No:

WPIEA2019108
ISBN:

9781498314749
ISSN:

1018-5941

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