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Rethinking Fiscal Policy in Oil-Exporting Countries
Author:
Mr. Tokhir N Mirzoev
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and
Ling Zhunull

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Series:
IMF Working Papers
Volume/Issue:
Volume 2019: Issue 108
Language:
English
Publication Date:
17 May 2019
DOI:
https://doi.org/10.5089/9781498314749.001
ISBN:
9781498314749
ISSN:
1018-5941
Pages:
41
Keywords:
WP; interest rate; physical capital; government spending; Fiscal policy; oil exporters; permanent income hypothesis; fiscal rules; wealth stabilization; target path; oil price shock; spending policy; PIH expenditure benchmark; oil wealth; wealth target; subsoil wealth; level of wealth; PIH Policy; wealth dynamics; targeted wealth; Consumption; Oil prices; Stocks
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.
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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2019: Issue 108