Reverse Causality between Oil Policy and Fiscal Policy?: The Venezuelan Experience

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Peer Reviewed icon Peer Reviewed
Date issued
May 2021
Subject
Fiscal Policy;
Taxation;
Public Expenditure;
Oil Production;
Oil Policy;
Petroleum Industry
JEL code
E22 - Investment • Capital • Intangible Capital • Capacity;
O13 - Agriculture • Natural Resources • Energy • Environment • Other Primary Products;
E62 - Fiscal Policy;
E24 - Employment • Unemployment • Wages • Intergenerational Income Distribution • Aggregate Human Capital • Aggregate Labor Productivity;
E32 - Business Fluctuations • Cycles;
N16 - Latin America • Caribbean;
H50 - National Government Expenditures and Related Policies: General;
H21 - Efficiency • Optimal Taxation;
N56 - Latin America • Caribbean;
L71 - Mining, Extraction, and Refining: Hydrocarbon Fuels;
Q38 - Government Policy;
E21 - Consumption • Saving • Wealth;
E65 - Studies of Particular Policy Episodes;
H13 - Economics of Eminent Domain • Expropriation • Nationalization;
P16 - Political Economy
Country
Venezuela
Category
Working Papers
This paper uses a model of intergenerational accounting to simulate the intergenerational distribution of oil wealth in Venezuela. Venezuelan oil production does not seem to follow an optimal extraction path. Nevertheless, this is true if we do not consider what the government does with the resources received from the oil sector. In this paper we explored the interaction of oil policy and fiscal policy using an intergeneration accounting model. We found that these interactions could explain certain outcomes. In particular, the model could explain why the sector was open for investment in 1991 and then “re-nationalized” in 2001. Results suggest that when fiscal policy could leave an important burden to future generations, voters seem to favor a more tax oriented oil policy, leaving the oil in the subsoil.
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