Rethinking Fiscal Policy in Oil-Exporting Countries

42 Pages Posted: 14 Jun 2019

See all articles by Tokhir Mirzoev

Tokhir Mirzoev

International Monetary Fund (IMF)

Ling Zhu

International Monetary Fund (IMF)

Date Written: May 2019

Abstract

We examine the existing fiscal policy paradigm in commodity-exporting countries. First,we argue that its centerpiece-the permanent income hypothesis (PIH)-is not consistentwith either intergenerational equity or long-term sustainability in the presence ofuncertainty. Policies to achieve these goals need to be more prudent and better anchoredthan the PIH. Second, we point out the presence of a volatility tradeoff betweengovernment spending and wealth and re-assess long-held views on the appropriate fiscalanchors, the vice of procyclicality, and the (im)possibility of simultaneously smoothingconsumption and ensuring intergenerational equity and sustainability. Finally, we proposewhat we call a prudent wealth stabilization policy that would be more consistent withlong-term fiscal policy goals, yet relatively simple to implement and communicate.

Keywords: Consumption, Public investments, Poverty, Capital, Real interest rates, Fiscal policy, oil exporters, permanent income hypothesis, fiscal rules, PIH, intergenerational equity, long-term sustainability, oil price shock, non-stationary

JEL Classification: E62, H30, Q33, E01, G21, Q, Q02

Suggested Citation

Mirzoev, Tokhir and Zhu, Ling, Rethinking Fiscal Policy in Oil-Exporting Countries (May 2019). IMF Working Paper No. 19/108, Available at SSRN: https://ssrn.com/abstract=3404065

Tokhir Mirzoev

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Ling Zhu (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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