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| Author: | Ploeg, F. van der Venables, A.J. |
| Title: | Harnessing windfall revenues: optimal policies for resource-rich developing economies |
| Journal: | Economic Journal
2011 : MAR, VOL 121:551 p. 1-30 |
| Index terms: | natural resources government debt investment consumption capital |
| Language: | eng |
| Abstract: | A windfall of natural resources (or aid) faces government with a pile of 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. |
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