Managing oil revenues in Iran's economy: study of the fiscal rules on the government budget and the National Development Fund

Oil revenue management in the Iranian economy has been an important topic in recent studies. This study addresses the effects of shocks propagating from oil sector to other sectors by pplying proposed fiscal rules. Given the key role of governments and the financial system in propagating oil shocks in resource-rich economies, this study considers both sectors. A dynamic stochastic general equilibrium (DSGE) model in which government expenditures are dependent on oil revenues has been designed and simulated for Iran's economy. The proposed fiscal rules are the setting a floor for the oil fund (OF) oil inflow and imposing the fund balance floor. To examine the importance of the oil revenues coefficient, we treat it as a variable in the model and examine the impact of shocks on it. The results show that oil revenue coefficient is an effective tool for applying fiscal rules and has a large impact on macroeconomic variables. Applying a floor to the OF oil revenues coefficient is more effective at mitigating the effect of oil shock on macro variables fluctuations than setting a floor on the fund's balance. Both policies help to stabilize macroeconomic variables and preserve the share of oil revenues for future.