## Rethinking Fiscal Policy in Oil-Exporting Countries

_IMF Working Papers, May 17, 2019_

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**Canonical URL:** [Rethinking Fiscal Policy in Oil-Exporting Countries](https://www.imf.org/en/publications/wp/issues/2019/05/17/rethinking-fiscal-policy-in-oil-exporting-countries-46889)

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## Bibliographic details
- Authors: Tokhir N Mirzoev, Ling Zhu
- Published: May 17, 2019
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781498314749.001

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### Critique of the Permanent Income Hypothesis (PIH)
- Central argument: the PIH is not consistent with either intergenerational equity or long-term sustainability in the presence of uncertainty.
- Implication: policies to achieve intergenerational equity and sustainability need to be more prudent and better anchored than the PIH.
- Terminology preserved from source: permanent income hypothesis (PIH); PIH expenditure benchmark; PIH Policy.

### Volatility tradeoff and reassessment of fiscal doctrine
- Finding: there is a volatility tradeoff between government spending and wealth.
- Re-assessments addressed in the paper:
  - appropriate fiscal anchors;
  - the vice of procyclicality;
  - the (im)possibility of simultaneously smoothing consumption and ensuring intergenerational equity and sustainability.
- Relevant concepts and keywords preserved: volatility tradeoff; government spending; wealth; procyclicality; smoothing consumption; intergenerational equity; sustainability; target path; targeted wealth; wealth dynamics.

### Prudent wealth stabilization policy (proposal)
- Proposal: a "prudent wealth stabilization policy" designed to be more consistent with long-term fiscal policy goals.
- Characteristics emphasized:
  - more prudent than PIH-based policies;
  - better anchored to long-term goals;
  - relatively simple to implement and communicate.
- Related technical terms preserved: wealth stabilization; wealth target; wealth dynamics; level of wealth; oil wealth; subsoil wealth; physical capital.

### Key findings and emphases (summary bullets)
- The PIH is criticized as an inadequate centerpiece for fiscal policy in commodity-exporting countries under uncertainty.
- A tradeoff exists between stabilizing government spending and preserving wealth for future generations.
- Long-held views on fiscal anchors and the costs of procyclicality are reassessed in light of volatility and sustainability concerns.
- A pragmatic alternative—prudent wealth stabilization policy—is proposed as feasible and communicable.

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## Content in this bundle

- **Working Paper**
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_Source: https://www.imf.org/en/publications/wp/issues/2019/05/17/rethinking-fiscal-policy-in-oil-exporting-countries-46889_