Optimal Fiscal Strategy for Oil Exporting Countries

June 1, 2000

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Format: Chicago

Rodrigo O. Valdes, and Eduardo M Engel. Optimal Fiscal Strategy for Oil Exporting Countries, (USA: International Monetary Fund, 2000) accessed December 21, 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

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.

Subject: Commodities, Consumption, Expenditure, Income, National accounts, Oil, Oil prices, Prices

Keywords: Adjustment cost, Consumption, Consumption path, Convenience yield, Fiscal Policy, Income, Income uncertainty, Oil, Oil exporting countries, Oil income, Oil prices, Price process, Private income, Random walk, Spot price, Stabilization fund, Stabilization funds, WP

Publication Details

Pages:

71
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2000/118
Stock No:

WPIEA1182000
ISBN:

9781451854077
ISSN:

1018-5941

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