TY  - JOUR
AU  - Tornell,Aaron
AU  - Lane,Philip
TI  - Are Windfalls a Curse? A Non-Representative Agent Model of the Current  Account and Fiscal Policy
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 4839
PY  - 1999
Y2  - March 1999
UR  - http://www.nber.org/papers/w4839
L1  - http://www.nber.org/papers/w4839.pdf
N1  - Author contact info:
Aaron Tornell
Department of Economics
UCLA
405 Hilgard Ave, Bunche Hall #8283
Los Angeles, CA  90095-1477
Tel: 310/794-1686
Fax: 310/825-9528
E-Mail: tornell@econ.ucla.edu

Philip Lane
The Sutherland Centre
Arts Block
Trinity College Dublin
Dublin 2  IRELAND
E-Mail: plane@tcd.ie
AB  - In several countries temporary terms of trade improvements have led to a deterioration of the current account.  Furthermore, many of these countries failed to attain greater post-boom growth rates.  The point we make is that the structure of the fiscal process is critical in determining outcomes.  If fiscal control is unitary, then the consumption-smoothing effect is operative, and representative-agent models of the current account have predictive power.  However, if control is divided among several fiscal claimants, a voracity effect appears which counteracts the consumption-smoothing effect, leading to a deterioration of the current account in response to a positive shock.  We model the interaction among fiscal claimants as a dynamic game, and show that in equilibrium aggregate appropriation increases more than the windfall itself.  This results in a deterioration of the current account.  We also show that all the windfall is dissipated, with the country experiencing no increase in its growth rate.  Lastly, we analyze the experiences of seven countries which have enjoyed large windfalls.
ER  -