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Catch-Up Growth, Habits, Oil Depletion, and Fiscal Policy: Lessons from the Republic of Congo

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  • Stéphane Carcillo
  • Mr. Mauricio Villafuerte
  • Mr. Daniel Leigh

Abstract

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.

Suggested Citation

  • Stéphane Carcillo & Mr. Mauricio Villafuerte & Mr. Daniel Leigh, 2007. "Catch-Up Growth, Habits, Oil Depletion, and Fiscal Policy: Lessons from the Republic of Congo," IMF Working Papers 2007/080, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2007/080
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    References listed on IDEAS

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    Cited by:

    1. Pablo Lopez Murphy & Mr. Mauricio Villafuerte & Mr. Rolando Ossowski, 2010. "Riding the Roller Coaster: Fiscal Policies of Nonrenewable Resource Exporters in Latin America and the Caribbean," IMF Working Papers 2010/251, International Monetary Fund.
    2. Prospere Backiny-Yetna & Quentin Wodon, 2009. "Profil et perceptions de la pauvreté en République du Congo en 2005," Perspective Afrique, Association Africaine pour les Sciences sociales, vol. 4(1-3), pages 1-21.
    3. Mr. Jens R Clausen, 2008. "Calculating Sustainable Non-mineral Balances as Benchmarks for Fiscal Policy: The Case of Botswana," IMF Working Papers 2008/117, International Monetary Fund.
    4. Mauricio Villafuerte & Pablo López-Murphy & Rolando Ossowski, 2013. "Riding the Roller Coaster: Fiscal Policies of Nonrenewable Resource Exporters in Latin America and the Caribbean," Central Banking, Analysis, and Economic Policies Book Series, in: Luis Felipe Céspedes & Jordi Galí (ed.),Fiscal Policy and Macroeconomic Performance, edition 1, volume 17, chapter 5, pages 117-173, Central Bank of Chile.
    5. Mr. Paulo A Medas & Ms. Daria V Zakharova, 2009. "A Primeron Fiscal Analysis in Oil-Producing Countries," IMF Working Papers 2009/056, International Monetary Fund.
    6. Mauricio Villafuerte & Pablo López-Murphy & Rolando Ossowski, 2011. "Riding the Roller Coaster: Fiscal Policies of Nonrenewable Resources Exporters in Latin America and the Caribbean ," Working Papers Central Bank of Chile 609, Central Bank of Chile.
    7. International Monetary Fund, 2009. "Chad: Selected Issues," IMF Staff Country Reports 2009/067, International Monetary Fund.
    8. Ms. Daria V Zakharova & Ms. Charleen A Gust, 2012. "Strengthening Russia's Fiscal Framework," IMF Working Papers 2012/076, International Monetary Fund.
    9. International Monetary Fund, 2008. "Islamic Republic of Iran: Selected Issues," IMF Staff Country Reports 2008/285, International Monetary Fund.
    10. Wojciech Maliszewski, 2009. "Fiscal Policy Rules for Oil-Producing Countries: A Welfare-Based Assessment," IMF Working Papers 2009/126, International Monetary Fund.

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