We examine the existing fiscal policy paradigm in commodity-exporting countries. First,
we argue that its centerpiece—the permanent income hypothesis (PIH)—is not consistent
with either intergenerational equity or long-term sustainability in the presence of
uncertainty. Policies to achieve these goals need to be more prudent and better anchored
than the PIH. Second, we point out the presence of a volatility tradeoff between
government spending and wealth and re-assess long-held views on the appropriate fiscal
anchors, the vice of procyclicality, and the (im)possibility of simultaneously smoothing
consumption and ensuring intergenerational equity and sustainability. Finally, we propose
what we call a prudent wealth stabilization policy that would be more consistent with
long-term fiscal policy goals, yet relatively simple to implement and communicate.
The global boom in hydrocarbon, metal and mineral prices since the year 2000 created huge
economic rents - rents which, once invested, were widely expected to promote productivity
growth in other parts of the booming economies, creating a lasting legacy of the boom years.
This paper asks whether this has happened. To properly address this question the empirical
strategy must look behind the veil of the booming sector because that, by definition, will
boom in a boom. So the paper considers new data on GDP per person outside of the resource
sector. Despite having vast sums to invest, GDP growth per-capita outside of the booming
sectors appears on average to have been no faster during the boom years than before. The
paper finds no country in which (non-resource) growth per-person has been statisticallysignificantly
higher during the boom years. In some Gulf states, oil rents have financed a
migration-facilitated economic expansion with small or negative productivity gains. Overall,
there is little evidence the booms have left behind the anticipated productivity transformation
in the domestic economies. It appears that current policies are, overall, prooving insufficient
to spur lasting development outside resource intensive sectors.
Mr. Sanjeev Gupta, Mr. Alex Segura-Ubiergo, and Enrique Flores
Algunos académicos han sostenido que la distribución directa a la población de ingresos públicos provenientes de recursos naturales ayudaría a los países ricos en recursos naturales a escapar de la “maldición de los recursos naturales”. Este documento analiza si esta propuesta constituye una alternativa política viable para países ricos en recursos naturales. La primera prioridad para los responsables de la formulación de políticas en los países ricos en materias primas consiste en establecer los objetivos de política fiscal para promover la estabilidad macroeconómica y el desarrollo de las economías. En este sentido, el establecimiento de un marco fiscal adecuado que aporte información para tomar decisiones sobre cuánto ahorrar y cuánto invertir, cómo atenuar la volatilidad de los ingresos públicos, y cómo abordar los problemas relacionados con el agotamiento de los recursos naturales debe preceder cualquier análisis sobre distribución directa de recursos a la población.
Mr. Sanjeev Gupta, Mr. Alex Segura-Ubiergo, and Enrique Flores
Some scholars have argued that direct distribution of natural resource revenues to the population would help resource-rich countries escape the “resource curse.” This discussion note analyzes whether this proposal is a viable policy alternative for resource-rich countries. The first priority for policymakers is to establish fiscal policy objectives to support macroeconomic stability and development objectives. In this regard, the establishment of an adequate fiscal framework that informs decisions on how much to save and invest, or how to smooth out revenue volatility, and deal with exhaustibility issues should precede any discussion of direct distribution of resource wealth to the population.
How has Latin America coped with external shocks and economic vulnerabilities in the aftermath of the global financial crisis? Managing Economic Volatility in Latin America looks at how the region has fared in recent years in an environment of uncertainty. It presents a collection of novel contributions on capital flows, terms of trade, and macroeconomic policy in Latin America. The rigorous expert analysis offers an up-to-date guide to many of the key economic policy questions in the region. Chapters focus on important analytical issues, including assessing reserves adequacy and current account levels. The roles of macroeconomic policies and exchange rates regimes in coping with large capital inflows are examined, as well as the effectiveness of both monetary policy and fiscal policy in dealing with economic challenges in the region.
This paper uses a newly constructed revenue dataset of 35 resource-rich countries for the period 1992-2009 to analyze the impact of expanding resource revenues on different types of domestic (non resource) tax revenues. Overall, we find a statistically significant negative relationship between resource revenues and total domestic (non resource) revenues, including for the major tax components. For each additional percentage point of GDP in resource revenues, there is a reduction in domestic (non resource) revenues of about 0.3 percentage points of GDP. We find this primarily occurs through reduced effort on taxes on goods and services—in particular, the VAT— followed by a smaller negative impact on corporate income and trade taxes.
This paper investigates the empirical characteristics of business cycles and the extent of cyclical comovement in the Gulf Cooperation Council (GCC) countries, using various measures of synchronization for non-hydrocarbon GDP and constituents of aggregate demand during the period 1990-2010. By applying the Christiano-Fitzgerald asymmetric band-pass filter and a mean corrected concordance index, the paper identifies the degree of non-hydrocarbon business cycle synchronization?one of the main prerequisites for countries considering to establish a monetary union. The empirical results show low and heterogeneous synchronization in non-hydrocarbon business cycles across the GCC economies, and a decline in the degree of synchronicity in the 2000s, if Kuwait is excluded from the sample, partly because of divergent fiscal policies.
Oil-producing countries face challenges arising from the fact that oil revenue is exhaustible, volatile, and uncertain, and largely originates from abroad. Reflecting these challenges, the paper proposes some important general principles for the formulation and assessment of fiscal policy in these countries. The main findings can be summarized in some key guidelines: the non-oil balance should feature prominently in the formulation of fiscal policy; it should generally be adjusted gradually; the government should strive to accumulate substantial financial assets over the period of oil production; and, where necessary, strategies should aim at breaking procyclical fiscal responses to volatile oil prices.
The paper models the incentives for a self-interested government to implement "good policies". While good policies lead to investment and growth, they reduce the government's ability to increase supporters' consumption. The model predicts that resource abundance is conductive to poor policies and, consequently, to low investment. The implications of the model are broadly supported by evidence on sub-Saharan African countries. In particular, countries that are rich in natural resources tend to have lower institutional quality and worse macroeconomic and trade policies.