Fiscal Policy Rules for Oil-Producing Countries: A Welfare-Based Assessment

Maliszewski, Wojciech

doi:10.5089/9781451872736.001

Cited by 22 publications

(28 citation statements)

References 4 publications

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“…These jurisdictions experience highly volatile revenues and are, therefore, more likely to benefit from a rule (Céspedes and Velasco, 2014). Using numerical simulations for a stylized oil-producing country, Maliszewski (2009) concludes that ad hoc savings rules perform poorly, but Engel et al (2011) and Landon and Smith (2015) find considerable benefit from the use of simple savings rules for commodity exporters.…”

Section: Introductionmentioning

confidence: 99%

“…This form of utility function has been used in many studies that assess the benefit of a reduction in consumption volatility or the welfare consequences of uncertainty. See, for example,Morduch (1995),Ghosh and Ostry (1997),Lucas (2003),Pallage and Robe (2003),Barlevy (2004),Durdu et al (2009),Maliszewski (2009),Barro (2009),Bems and Carvalho Filho (2011),Borensztein et al (2013) andCéspedes and Velasco (2014). With this form of the utility function, there are no economies of scale associated with government spending and no public good aspects to spending.…”

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confidence: 99%

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Does the design of a fiscal rule matter for welfare?

Landon

Smith

2017

Economic Modelling

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This study uses Monte Carlo methods to examine the impact on welfare of several types of commonly used fiscal rules. The simulations employ an expected intertemporal welfare function and the parameters from a three-variable structural VAR estimated using data for sixteen European countries. The VAR captures the potential interaction effects between output, government spending and revenue. We find welfare gains from many, but not all, of the fiscal rules. The best rules target a zero structural deficit and cause government spending volatility to fall by about one third. However, a simple rule, where government expenditure is set equal to a one-period ahead forecast of revenue, performs almost as well. In particular, this simple rule yields a welfare gain and a reduction in volatility similar to that of the more complicated zero structural deficit rule adopted by Switzerland and several other countries. Balanced budget rules perform less well than rules that target the structural deficit. A rule that keeps real per capita government spending equal to a constant-a type of rule adopted by some U.S. states-yields relatively low welfare and often leads to significant debt accumulation. These results highlight the importance of the appropriate design of a fiscal rule.

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Section: Introductionmentioning

confidence: 99%

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confidence: 99%

Does the design of a fiscal rule matter for welfare?

Landon

Smith

2017

Economic Modelling

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“…44 Maliszewski (2009) for instance discusses derivations of optimizing rules under various social welfare functions and ad hoc rules, but his model has no productive public goods. The same issue arises in the analysis of Engel et al (2013).…”

Section: Optimal Allocation Of Resource Windfallsmentioning

confidence: 99%

Optimal fiscal management of commodity price shocks

Agénor

2016

Journal of Development Economics

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A dynamic stochastic general equilibrium model is used to study the optimal fiscal response to commodity price shocks in a small open low-income country. The model accounts for imperfect access to world capital markets and a variety of externalities associated with public infrastructure, including utility benefits, a direct complementarity effect with private investment, and reduced distribution costs. However, public capital is also subject to congestion and absorption constraints, with the latter affecting the efficiency of infrastructure investment. The model is parameterized and used to examine the transmission process of a temporary resource price shock under a benchmark case (cash transfers) and alternative fiscal rules, involving either higher public spending or accumulation in a sovereign fund. The optimal allocation rule between spending today and asset accumulation is determined so as to minimize a social loss function defined in terms of the volatility, relative to the benchmark case, of private consumption and either the nonresource primary fiscal balance or a more general index of macroeconomic stability, which accounts for the volatility of the real exchange rate. Sensitivity analysis is conducted with respect to various structural parameters and model specification.

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“…Second, an implied segmentation between current and capital spending (if consumption were equated with the former) would ignore that some current spending also can have a positive impact on growth (and the past experience shows, not all capital spending does) as well as the recurrent cost implications of capital spending.11 Cross-country studies include theIMF's April 2007 Regional Economic Outlook: Sub-Saharan Africa;. For country applications, seeBasdevant (2008);Carcillo, Leigh, and Villafuerte (2007);Maliszewski (2009); andVelculescu and Rizavi (2005).…”

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confidence: 99%