The Role of Various Oil Fund Scenarios on Production and Inflation Variables in Iran

In order to optimize oil revenues, these revenues are currently allocated to the National Iranian Oil Company, the National Development Fund and the State Budget, in terms of percentates of total revenues. The share of the National Iranian Oil Company is 14.5 percent and division of the rest of revenues is decided by the Government. The purpose of the present research is to study the effect of this rule on the stability of inflation and GDP, and to determine the optimal share of the National Development Fund. We use the Bayesian Autoregressive model to study the effect of different shares of the Fund (20, 30, 40 and 50 percent) on inflation and GDP. The results show that the current fixed share of the Fund contributes to stability of inflation and GDP and that weaknesses in the Fund’s performance are not related to its fixed share of revenues. We estimate that the optimal share of the Fund out of oil revenues is 30 percent, which is consistent with honoring the 14.5 percent share of the National Iranian Oil Company investment and minimizing fluctuations in GDP and inflation.
JEL Classification: Q33, Q38, C11