Abstract/Summary

Recently it has become popular among oil-producing countries to establish oil revenue funds, which are believed to stabilize the economy and provide inter-generational redistribution. Oil revenue funds deffer depending on rules, such as accumulation rules and withdrawal rules. Numerical simulations show that funds can improve intergenerational social welfare, though not always. Which rule yields the highest intergenerational social welfare depends on countries’ parameters such as gross interest rate, relative risk aversion and growth rate of oil production. Some rules may be unaffordable for a government budget. If oil production does not decline, funds following expenditure-based accumulation rules yield higher social welfare than funds that follow other rules. If oil production declines, the Permanent Oil Income model or “Bird-in-Hand” can yield the highest social welfare.