Natural-Resource Depletion, Habit Formation, and Sustainable Fiscal Policy: Lessons from Gabon
IMF Working Papers, August 1, 2006
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- Natural-Resource Depletion, Habit Formation, and Sustainable Fiscal Policy: Lessons from Gabon
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Bibliographic details
- Authors: Jan-Peter Olters, Daniel Leigh
- Published: August 1, 2006
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451864533.001
Summary of paper and methodological contributions
- Proposes a model that incorporates short-run adjustment costs (referred to as "habits") into fiscal-policy analysis for oil-producing countries.
- Retains the long-run target logic of Friedman's (1957) permanent-income hypothesis but relaxes its abstraction from short-run consolidation costs.
- Adds operational realism by permitting differential interest rates on sovereign debt and financial assets.
Application context
- Country studied: Gabon.
- Oil-reserve horizon used in the analysis: expected to be exhausted in 30 years.
Key findings
- Gabon's current fiscal-policy stance cannot be maintained.
- The presence of habits (short-run adjustment costs) justifies smoothing the bulk of the adjustment toward the sustainable level over three to five years.
Policy implications and recommendations
- Fiscal adjustment toward sustainability should account for short-run costs of consolidation (habits) rather than implementing abrupt consolidation consistent only with permanent-income targets.
- Policymakers should smooth most of the fiscal adjustment over a period of three to five years to mitigate short-run costs while moving toward the sustainable fiscal path implied by resource depletion.