Cover IMF Working Papers
Fiscal Rules for Resource Windfall Allocation: The Case of Trinidad and Tobago
Author:
Keyra Primus
Search for other papers by Keyra Primus in
Current site
Google ScholarClose
Series:
IMF Working Papers
Volume/Issue:
Volume 2016: Issue 188
Language:
English
Publication Date:
16 Sep 2016
DOI:
https://doi.org/10.5089/9781475536775.001
ISBN:
9781475536775
ISSN:
1018-5941
Pages:
49
Keywords:
WP; natural resource; resource windfall; Optimal Fiscal Policy; Resource Windfalls; Resource-Rich Developing Countries; production shock; resource revenue; sovereign fund; resource commodity; resource output; resource rent; resource movement effect; revenue flow; windfall household; resource wealth; resource income; Consumption; Public investment spending; Public investment and public-private partnerships (PPP); Sovereign wealth funds
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
Download PDF (5.5 MB) Download Epub
Managing resource revenues is a critical policy issue for small open resource-rich countries. This paper uses an open economy dynamic stochastic general equilibrium model to analyze the transmission of resource price shocks and a shock to resource production in the Trinidad and Tobago economy. It also applies alternative fiscal rules to determine the optimal allocation of resource windfalls between spending today and saving in a sovereign wealth fund. The results show that spending all the resource windfall on consumption and investment creates more volatility and amplifies Dutch disease effects, when compared to the case where all the excess revenues are saved. Also, neither a policy of full spending nor full saving of the surplus revenue inflows is optimal if the government is concerned about both household welfare and fiscal stability. In order to minimize deviations from both objectives, the optimal fiscal response suggests that a larger fraction of the resource windfalls should be saved.
  • Collapse
  • Expand
Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2016: Issue 188