Back Matter

Back Matter

Niko Hobdari, Eric Le Borgne, Chonira Aturupane, Koba Gvenetadze, John Wakeman-Linn, and Stephan Danninger
Published Date:
April 2004
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    Source: Azerbaijan International Operating Company (AIOC). Also see

    Personal income tax accrues according to the tax code while profit tax obligations are defined in the PSA.

    Proven, probable, and possible reserves are defined as oil deposits that are considered 90, 50, and 10 percent likely, respectively.

    Gas-related revenues over the period 2000–24 are projected to commence in 2006 with the first gas exports from the Shah Deniz field, but are negligible in comparison to the revenues accruing to the government from the ACG PSA.

    That is, the need for a critical mass (e.g., of human and physical capital) before economic “takeoff can occur (see Azariadis and Drazen, 1990).

    Theoretical models have shown how income inequality can exert a negative effect on investment and on subsequent economic growth because it provides strong incentives for redistribution policies, which hurt growth-promoting investment (e.g., Persson and Tabellini, 1994). Empirical evidence has confirmed such a negative relationship, at least for democratic regimes.

    For instance, pension liabilities, whose future cost is subject to a large degree of uncertainty (political considerations could significantly affect the payout to future pensioners).

    Simplicity and transparency are desirable features for a rule, making it easier for a government to explain to the public and easier for the public to monitor adherence to the rule, thereby enhancing its credibility.

    For instance, from the probable oil production scenario, a constant total oil wealth rule indicates that, for 2004, the non-oil deficit can reach 29 percent of GDP. After that, each year until 2008 it declines by around 3 percent of GDP, to reach a maximum of 18 percent of GDP.

    These approaches are judged to be preferable to the constant wealth strategies, as they would be politically easier to explain and defend.

    See Table 2 in Appendix 1 for the first five years of data for the non-oil deficit path under various oil prices and fluctuation bands.

    Azerbaijan has little nonconcessional government debt, and therefore use of oil revenues for early repayment of nonconcessional debts is not a viable option.

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