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Working Paper

Non-Renewable Resources, Fiscal Rules, and Human Capital

GOVERNMENT SAVINGS WITHDRAWAL CAPITAL MARKETS HOLDING EXTERNAL COMMERCIAL BORROWING INTEREST INCOME LIABILITY GOVERNMENT EXPENDITURES OIL PRICE FOREIGN DEBT ACCOUNTING INTERNATIONAL CAPITAL STOCK INCOME INTEREST PUBLIC INVESTMENTS INVESTMENT FUND GOVERNMENT SPENDING INTEREST RATE EXCHANGE DISCOUNT RATE LIQUIDITY DEVELOPING COUNTRIES REAL INTEREST EXPORTERS INTERNATIONAL CAPITAL MARKETS REVENUES PORTFOLIO FISCAL POLICY BONDS EQUILIBRIUM LOAN DISCOUNT CAPITAL STOCK TAX INCOME TAX DEBT ISSUANCE WEALTH INVESTMENT PROCESS INTERNATIONAL BANK PENSION BUDGET LABOR MARKET TRADE BALANCE OIL PRICES INVESTMENT SPENDING CAPACITY CONSTRAINT CURRENCY COMMERCIAL BORROWING DOMESTIC CURRENCY CURRENT ACCOUNT SURPLUS LOW INTEREST RATES INTEREST RATE PAYMENTS OPTIONS INTEREST RATES MONETARY FUND DEBT MARKETS PRIVATE INVESTMENT RETURN INTERNATIONAL DEVELOPMENT PUBLIC FINANCE OPEN ECONOMY BUSINESS CYCLE INTERNATIONAL ECONOMICS DOMESTIC DEBT DIRECT INVESTMENT LOANS REAL INTEREST RATE RESERVES PRIVATE CAPITAL NATURAL RESOURCES GROSS DOMESTIC PRODUCT EXOGENOUS INCOME FINANCE BANK POLICY PUBLIC INVESTMENT TAXES EXPENDITURE BUDGET CONSTRAINT HUMAN CAPITAL INTEREST PAYMENTS GOOD ASSET VALUE TAX RATE CAPITAL GLOBAL MARKET SOVEREIGN RISK ACCESS TO CAPITAL FUTURE FOREIGN DIRECT INVESTMENT RETURNS CAPACITY CONSTRAINTS MACROECONOMICS PERMANENT INCOME INVESTMENT PROJECTS EXPENDITURES ECONOMY ISSUANCE TAX RATES SHARES REAL EXCHANGE RATE MARKET PUBLIC DEBT BALANCE OF PAYMENT SOLVENCY INFRASTRUCTURE INVESTMENTS PERMANENT INCOME HYPOTHESIS GOVERNMENT DEBT INVESTMENT STRATEGIES GOVERNMENT BONDS GOODS INVESTMENT NEGATIVITY CONSTRAINT SHARE OIL RESERVES REVENUE DISTRIBUTION OF WEALTH INVESTMENTS PUBLIC SECTOR DEBT PENSION FUND EXCHANGE RATE GOVERNMENT INVESTMENT INSTRUMENT RISK AVERSION PIH REMITTANCES CAPITAL INVESTMENT OUTCOMES LIABILITIES MARGINAL UTILITY OF CONSUMPTION CAPITAL ACCOUNT GUARANTEE DEVELOPMENT POLICY INVESTING
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World Bank, Washington, DC
Africa | Kenya
2016-06-14T21:20:22Z | 2016-06-14T21:20:22Z | 2016-06

This paper develops a multi-sector, small open economy Dynamic Stochastic General Equilibrium model, which includes the accumulation of human capital, built via public expenditures in education and health. Four possible fiscal rules are examined for total public investment in infrastructure, education, and health in the context of a sustainable resource fund: the spend-as-you-go, bird-in-hand spending; moderate front-loading, and permanent income hypothesis approaches. There are two dimensions to this exercise: the scaling effect, which describes the level of total investment, and the composition effect, which defines the structure of investment between infrastructure, education, and health. The model is applied to Kenya. For impacts on the non-resource economy, efficiency of spending, and sustainability of fiscal outcomes, the analysis finds that, although investment frontloading would bring high growth in the short term, the permanent income hypothesis approach is overall more desirable when fiscal sustainability concerns are taken into consideration. Finally, a balanced composition is the preferred structure of investment, given the permanent income hypothesis allocation of total investment over time.

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