Arbeitspapier
Harnessing windfall revenues: optimal policies for resource-rich developing economies
A windfall of natural resource revenue (or foreign aid) faces government with choices of how to manage public debt, investment, and the distribution of funds for consumption, particularly if the windfall is both anticipated and temporary. We show that the permanent income hypothesis prescription of an ever-lasting increase in consumption financed by borrowing ahead of the windfall and then accumulating a Sovereign Wealth Fund (SWF) is not optimal for capital-scarce developing economies. Such countries should accumulate public and private capital to accelerate their development and, only if the windfall is large relative to initial foreign debt, is it optimal to build a SWF. The optimal time profile of consumption is biased towards the near future, as compared to the permanent income hypothesis. Outcomes depend on instruments available to government. We study cases where the government can make lump-sum transfers to consumers; where such transfers are impossible so optimal policy involves cutting distortionary taxation in order to raise investment and wages; and where Ricardian consumers can borrow against future revenues, in which case the policy response to possible over-consumption is a high level of investment in infrastructure.
- Sprache
-
Englisch
- Erschienen in
-
Series: CESifo Working Paper ; No. 2571
- Klassifikation
-
Wirtschaft
Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General
International Lending and Debt Problems
Foreign Aid
Economic Growth of Open Economies
Taxation and Subsidies: Efficiency; Optimal Taxation
National Debt; Debt Management; Sovereign Debt
Macroeconomic Analyses of Economic Development
Resource Booms
- Thema
-
Natural resource revenue
windfall public revenues
risk premium on foreign debt
public infrastructure
private investment
credit constraints
optimal fiscal policy
debt management
Sovereign Wealth Fund
asset holding subsidy
developing economies
Rohstoffwirtschaft
Öffentliche Einnahmen
Windfall Profit
Staatsfonds
Finanzpolitik
Investitionspolitik
Debt Management
Theorie
Entwicklungsländer
- Ereignis
-
Geistige Schöpfung
- (wer)
-
van der Ploeg, Frederick
Venables, Anthony J.
- Ereignis
-
Veröffentlichung
- (wer)
-
Center for Economic Studies and ifo Institute (CESifo)
- (wo)
-
Munich
- (wann)
-
2009
- Handle
- Letzte Aktualisierung
-
10.03.2025, 11:44 MEZ
Datenpartner
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Objekttyp
- Arbeitspapier
Beteiligte
- van der Ploeg, Frederick
- Venables, Anthony J.
- Center for Economic Studies and ifo Institute (CESifo)
Entstanden
- 2009