Author : Stéphane Carcillo
Publisher : International Monetary Fund
ISBN 13 :
Total Pages : 34 pages
Book Rating : 4.44/5 ( download)
Book Synopsis Catch-Up Growth, Habits, Oil Depletion, and Fiscal Policy by : Stéphane Carcillo
Download or read book Catch-Up Growth, Habits, Oil Depletion, and Fiscal Policy written by Stéphane Carcillo and published by International Monetary Fund. This book was released on 2007-04 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: In a number of oil producing countries, oil revenue accounts for the majority of government revenue, but is expected to be depleted in a relatively short time frame. Ensuring that fiscal policy is on a sustainable path is thus a high priority, but political and social adjustment costs create incentives to delay fiscal consolidation. This paper estimates how the permanently sustainable non-oil primary deficit (PSNOPD) depends on the speed of consolidation, using an optimization model with habit formation. Realism is added by allowing for negative growth-adjusted interest rates during a temporary period of catch-up growth. Applied to the Republic of Congo, this approach leads to the following conclusions: (i) the current fiscalpolicy stance is unsustainable; (ii) social adjustment costs justify spreading the bulk of the adjustment over five years; and (iii) the slower the adjustment, the lower the PSNOPD level.