Harnessing Windfall Revenues: Optimal Policies for Resource-Rich Developing Economies

30 Pages Posted: 16 Feb 2011

See all articles by Rick van der Ploeg

Rick van der Ploeg

University of Oxford

Anthony J. Venables

University of Oxford; Centre for Economic Policy Research (CEPR)

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Abstract

A windfall of natural resources (or aid) faces government with choices of how to manage public debt, investment and the distribution of funds for consumption. The permanent income hypothesis suggests a sustained increase in consumption supported, once resources are depleted, by interest on accumulated foreign assets. However, this strategy is not optimal for capital-scarce developing economies. Incremental consumption should be skewed towards present generations. Savings should be directed to accumulation of domestic private and public capital rather than foreign assets. Optimal policy depends on the impact of distortionary taxation and ability of consumers to borrow against future revenues.

Suggested Citation

van der Ploeg, Frederick and Venables, Anthony J., Harnessing Windfall Revenues: Optimal Policies for Resource-Rich Developing Economies. The Economic Journal, Vol. 121, No. 551, pp. 1-30, 2011. Available at SSRN: https://ssrn.com/abstract=1762431 or http://dx.doi.org/10.1111/j.1468-0297.2010.02411.x

Frederick Van der Ploeg (Contact Author)

University of Oxford ( email )

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Anthony J. Venables

University of Oxford ( email )

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Oxford, Oxfordshire OX1 4AU
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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