Optimal fiscal management in an economy with resource revenue‐financed government‐linked companies

Lim, KY ORCID: https://orcid.org/0000-0003-1978-176X and Zhang, S, 2021. Optimal fiscal management in an economy with resource revenue‐financed government‐linked companies. International Journal of Finance and Economics. ISSN 1076-9307

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Abstract

We present a dynamic stochastic general equilibrium (DSGE) model in which a resource‐rich government allocates its excess resource rents between a resource stabilization fund and the facilitation of costly domestic fund‐raising activities of sovereign wealth funds (SWF), which holds a portfolio of government‐linked companies (GLCs). Despite being less productive efficient, GLCs' operation benefits from scale economies tied to the resource sector: its profitability is procyclical to commodity shocks. The model is estimated to Malaysia using the Bayesian approach, with the results suggesting a business cycle heavily influenced by resource shocks. Based on this, we solve numerically for a socially optimal combination of excess resource savings allocation. We find the present allocation to be sub‐optimal, regardless of the structural shocks. This suggests that the Malaysian economy might have hit its absorptive capacity constraint (i.e., a domestic economy saturated by GLCs).

Item Type:	Journal article
Publication Title:	International Journal of Finance and Economics
Creators:	Lim, K.Y. and Zhang, S.
Publisher:	Wiley
Date:	9 January 2021
ISSN:	1076-9307
Identifiers:	Number Type 10.1002/ijfe.2533 DOI 1407928 Other
Rights:	© 2021 The Authors This is an open access article under the terms of the Creative Commons Attribution License, which permits use, distribution and reproduction in any medium, provided the original work is properly cited.
Divisions:	Schools > Nottingham Business School
Record created by:	Jeremy Silvester
Date Added:	11 Feb 2021 17:32
Last Modified:	31 May 2021 15:06
Related URLs:	Publisher
URI:	https://irep.ntu.ac.uk/id/eprint/42274

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