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)| false Barnett, Steven, and Rolando Ossowski, 2003, “ Operational Aspects of Fiscal Policy in Oil-Producing Countries,” in Fiscal Policy Formulation and Implementation in Oil-Producing Countries, ed.by ( Jeffrey Davis, Rolando Ossowski, and Annalise Fedelino Washington: International Monetary Fund), pp. 45- 81.
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European Department and Fiscal Affairs Department, respectively. The authors would like to thank Steven Barnett, Dennis Botman, Mark De Broeck, Robert Ford, Manmohan Kumar, Rolando Ossowski, and participants in a seminar at Norges Bank for helpful comments.
Unless otherwise specified, GDP in this paper refers to mainland GDP, which is all domestic production except from exploration of crude oil and natural gas, services activities incidental to oil and gas, and transport via pipelines; and ocean transport.
Norway has been one of the first oil-producing countries measuring its fiscal policy stance based on non-oil budget balances. See Barnett and Ossowski (2003) on why this approach is more appropriate for countries with exhaustible resources.
The old-age dependency ratio is defined as the ratio of the population aged 65 or over to the population aged 15-64. Population projections come from the United Nations (2007).
Hereafter, oil and gas revenues/production will be called oil revenues/production.
The state receives revenues from oil enterprises through taxes (ordinary corporate income tax at 28 percent; special tax rate for oil producers at 50 percent of income; and the green gas emission (CO2) tax), royalties, fees, its direct financial interest in the petroleum sector (SDFI), and dividends from state shares of Statoil and Norsk Hydro (see IMF 2001).
The alternative rules are not necessarily meant to be welfare optimizing. This paper does not analyze inter-generational equity impact of these alternative rules. Heide and others (2006) argue that higher pre-funding of future spending favors future generations, who would be better off even without such redistribution because of economic growth.
For the derivation of Equation (1), and its application to a number of oil producing countries, see, for example, Barnett and Ossowski (2003), Leigh and Olters (2006), and Carcillo, Leigh, and Villafuerte (2007). Tersman (1991) applies a similar framework for Norway.
See IMF (2006) for recommendations to Gabon made in the context of the 2006 Article IV consultations.
In particular, monetary policy follows a forward-looking reaction function that targets the one-year ahead forecast of domestic inflation, and contains an interest rate inertia component in line with the monetary policy literature.
Note, however, that households without access to financial markets do not increase consumption in response to the future expected reduction in the tax burden.
As discussed in the previous chapter, output gains under the growth-adjusted rule accrue mainly because this rule involves the least tax burden, which stimulates labor supply. However, this does not necessarily mean that the growth-adjusted rule is welfare optimizing.