Non-Renewable Resources, Fiscal Rules, and Human Capital
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 fo...
| Main Authors: | , , |
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| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2016
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2016/06/26437791/non-renewable-resources-fiscal-rules-human-capital http://hdl.handle.net/10986/24533 |
| Summary: | 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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