The Economics and Politics of SWFs

This chapter discusses some important aspects of constrained public spending. This is difficult for individuals and states alike, and required for savings and later investment in a SWF. It also discusses how returns from the fund are spent, and implications of this. A fiscal rules’ literature prescribes that regulations should be transparent and credible, to isolate resource income from the general budget, and clearly specify allowed spending. Norway conforms to this. Resource income accrues to the Fund before it is spent, and up to 3 pct. of the balance prior the budget year can be spent annually. The metric is the structural oil-adjusted deficit; i.e. without resource incomes in a cyclically neutral year, and the rule is not used mechanically. Funds are spent to provide households with goods and services or tax relief. As illustrated by Alaska, one could instead pay a fraction of the returns to the beneficiaries. Provision may, however, be less contentious and thus less politically risky than handouts.