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Patrick Salyer and David E. Bloom

The September 2007 issue of F&D looks at the growth of cities and the trend toward urbanization. Within the next year, for the first time in history, more than 50 percent of the world's population will be living in urban rather than rural areas. What are the economic implications of this urban revolution? Economists generally agree that urbanization, if handled well, holds great promise for higher growth and a better quality of life. But as the lead article tells us, the flip side is also true: if handled poorly, urbanization could not only impede development but also give rise to slums. Other articles in this series look at poverty as an urban phenomenon in the developing world and the development of megacities and what this means for governance, funding, and the provision of services. Another group of articles discusses the challenge of rebalancing growth in China. 'People in Economics' profiles Harvard economist Robert Barro; 'Country Focus' looks at the challenges facing Mexico, and 'Back to Basics' takes a look at real exchange rates.

Mr. Jan-Peter Olters and Mr. Daniel Leigh
While models based on Friedman's (1957) permanent-income hypothesis can provide oilproducing countries with long-run fiscal targets, they usually abstract from short-run costs associated with consolidation. This paper proposes a model that takes such adjustment costs (or "habits") into account. Further operational realism is added by permitting differential interest rates on sovereign debt and financial assets. The approach is applied to Gabon, where oil reserves are expected to be exhausted in 30 years. The results suggest that Gabon's current fiscal-policy stance cannot be maintained, while the presence of habits justifies smoothing the bulk of the adjustment toward the sustainable level over three to five years.