Fiscal Policy Rules for Oil-Producing Countries: A Welfare-Based Assessment
IMF Working Papers, June 1, 2009
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- Fiscal Policy Rules for Oil-Producing Countries: A Welfare-Based Assessment
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Bibliographic details
- Authors: Wojciech Maliszewski
- Published: June 1, 2009
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451872736.001
Main findings
- The paper presents numerical simulations of various fiscal rules for oil-producing countries.
- Welfare implications are sensitive to:
- the choice of the social welfare function,
- initial conditions,
- non-oil growth prospects.
- The distribution of non-oil wealth is important for countries with relatively low oil reserves.
- Corrections for adjustment costs and uncertainty with respect to oil prices should be applied carefully.
- While avoiding sharp changes in the fiscal policy stance may be appealing, it is not necessarily optimal if the initial position is unsustainable.
- Ad hoc rules are shown to perform poorly.
- The analysis abstracts from several issues critical for developing practical policy advice and should not be treated as a complete framework.
Sensitivities and caveats
- Results depend strongly on the social welfare function used in simulations.
- Initial fiscal and macroeconomic positions materially affect optimal rule performance.
- Non-oil growth prospects alter welfare rankings of fiscal rules.
- Adjustment costs and oil price uncertainty require careful correction; naive adjustments can mislead policy conclusions.
- The study does not encompass several practical issues needed for full policy guidance.
Policy implications and recommendations
- Fiscal rules should be evaluated within a welfare-based framework that explicitly accounts for:
- social welfare function specification,
- initial conditions,
- expected non-oil growth.
- Policymakers should avoid relying on ad hoc rules without welfare-based assessment.
- Smoothness of fiscal adjustments is not an unconditional virtue; if the initial position is unsustainable, sharper adjustments may be optimal.
- For countries with relatively low oil reserves, attention to the distribution of non-oil wealth is important when designing fiscal rules.
- Corrections for adjustment costs and oil price uncertainty should be designed and applied with caution to avoid misleading policy prescriptions.
Scope and limitations
- The paper offers model-based numerical simulations rather than a turnkey practical framework.
- It abstracts from several issues critical for operational policy advice.
Fiscal Policy Rules for Oil-Producing Countries: A Welfare-Based Assessment — Wojciech Maliszewski, June 1, 2009. https://www.imf.org/en/publications/wp/issues/2016/12/31/fiscal-policy-rules-for-oil-producing-countries-a-welfare-based-assessment-23019
Content in this bundle
- 1. Initial Conditions