Government revenue stabilization funds

Therefore, it incorporates both the objective of a savings fund – the accumulation of assets to support future spending – and the goal of a stabilization fund – the reduction of expenditure volatility. [...] Since deposits to the fund and withdrawals from the fund are a function only of natural resource revenues, the net contribution of resource revenues to current expenditure is RNR t (Dt Wt ). Equation (1) implies that the government does not save or borrow other than to the extent required by the deposit and withdrawal criteria of the fund. [...] A stabilization fund with fixed deposit and fixed withdrawal rates One of the simplest forms of stabilization fund involves the deposit of a fixed proportion, d, of nonrenewable resource revenues in the fund each year and the withdrawal of a fixed proportion, w, of the assets in the fund at the beginning of each year (before that year’s deposit). [...] The magnitude of the changes smoothed will depend on the size of s. As s approaches zero, the width of the band shrinks, Dt – Wt approaches the value given by the moving average fund, and current resource revenues have no impact on revenues net of fund deposits and withdrawals. [...] Calculation of the welfare benefits of a stabilization fund A crucial aspect of the comparison of the stabilization funds is that each fund has different implications for three characteristics of government spending: expenditure volatility; the level of expenditure during the current period; and the level of future expenditure.