Implementable fiscal rules for an oil-exporting small open economy facing depletion

Working paper

In this paper I compute implementable .scal rules for a small open economy whose treasury is dependent on oil revenues and whose oil sector is shrinking. I model production in the oil and non oil sector and I analyze the e¤ects of implementing different sustainable fiscal rules in the context of a deteriorating oil sector. I assess the policy's performance in terms of conditional and unconditional welfare. I show that rules that finance government purchases with structural revenue are preferred only if government purchases do not enter the utility function. Otherwise, when government purchases are complements with private consumption, depletion makes rules that finance government purchases with current revenue more attractive. Furthermore, the lower the sustainable level of oil extraction, the harder it is to reject a rule that finances government purchases with current oil revenue.

Authors: Pieschacón, A

• Publication status: Published
• Publisher: University of Oxford
• Series: OxCarre Papers
• Publication date: 2009-01-01
• Paper number: 19
• Keywords: scal rules; oil depletion