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

Abstract

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. We explored the interaction of oil policy and fiscal policy using such intergenerational accounting model. We argue that the way in which tax revenues (both, those coming from oil and those who do not) are used today can affect voters preferences on how they will be used tomorrow. 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.

Keywords

• oil policy
• fiscal policy
• intergenerational accounting
• fiscal voracity
• oil expropriation cycles
• Venezuela