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We examine the existing fiscal policy paradigm in commodity-exporting countries. First, we argue that its centerpiece—the permanent income hypothesis (PIH)—is not consistent with either intergenerational equity or long-term sustainability in the presence of uncertainty. Policies to achieve these goals need to be more prudent and better anchored than the PIH. Second, we point out the presence of a volatility tradeoff between government spending and wealth and re-assess long-held views on the appropriate fiscal anchors, the vice of procyclicality, and the (im)possibility of simultaneously smoothing consumption and ensuring intergenerational equity and sustainability. Finally, we propose what we call a prudent wealth stabilization policy that would be more consistent with long-term fiscal policy goals, yet relatively simple to implement and communicate.

Fiscal policy. --- Tax policy --- Taxation --- Economic policy --- Finance, Public --- Government policy --- Investments: Stocks --- Macroeconomics --- Public Finance --- Fiscal Policy --- Fiscal Policies and Behavior of Economic Agents: General --- Resource Booms --- Macroeconomics: Consumption --- Saving --- Wealth --- Energy: Demand and Supply --- Prices --- National Government Expenditures and Related Policies: General --- Pension Funds --- Non-bank Financial Institutions --- Financial Instruments --- Institutional Investors --- Public finance & taxation --- Investment & securities --- Consumption --- Oil prices --- Expenditure --- Stocks --- Fiscal policy --- National accounts --- Financial institutions --- Economics --- Expenditures, Public --- United Arab Emirates