Rethinking Fiscal Policy in Oil-Exporting Countries

Author/Editor:

Tokhir N Mirzoev ; Ling Zhu

Publication Date:

May 17, 2019

Electronic Access:

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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.

Summary:

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.

Series:

Working Paper No. 19/108

Subject:

English

Publication Date:

May 17, 2019

ISBN/ISSN:

9781498314749/1018-5941

Stock No:

WPIEA2019108

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

41

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