Are Developing Countries Better Off Spending Their Oil Wealth Upfront?

By H. Takizawa, E. H. Gardner, Kenichi Ueda

August 1, 2004

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H. Takizawa, E. H. Gardner, and Kenichi Ueda. Are Developing Countries Better Off Spending Their Oil Wealth Upfront?, (USA: International Monetary Fund, 2004) accessed December 22, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

We question the conventional view that it is optimal for government to maintain a stable level of spending out of oil wealth. We compare this conventional policy recommendation with one where government spends all of its oil revenues upfront, at the same rate as oil is extracted. Using a neoclassical growth model with positive external effects of public spending on consumption and productivity, we find that, if the economy is growing along the steady-state balanced path, the conventional view is validated. However, if the economy starts with a lower capital stock, the welfare ranking across two policies can be reversed.

Subject: Consumption, Economic growth, Expenditure, Fiscal policy, National accounts, Private consumption, Public investment spending, Sustainable growth

Keywords: Annuity policy, Baseline economy, Capital stock, Consumption, Goods rise, Oil wealth, Private consumption, Public goods, Sustainable growth, Welfare comparison, WP

Publication Details

Pages:

29
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2004/141
Stock No:

WPIEA1412004
ISBN:

9781451856217
ISSN:

1018-5941

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