Financial instability of national economies
Other Names: National fiscal instability
Incidence: Resource development companies investing in a developed country with an established market economy make certain assumptions about continuity in fiscal policy. In the case of most developing countries, and especially for those struggling to move from command to market economies, it is common for undertakings to be sought which guarantee fiscal stability from the State or its agencies. There can be serious constitutional/political objections to the State offering a particular category of investor contractual undertakings which would protect, or have the effect of protecting them, from the incidence of any future tax changes. Given that constraint, investors cannot be expected to make huge up-front investments on the basis of an open-ended fiscal regime. It also influences environmental impact of resource development activities because, whilst companies are generally willing in principle to do their part, as in the case of fiscal stability, they are reluctant to assume open-ended responsibilities.
Problem Type: D: Detailed problems
Date of last update 22.11.1996 – 00:00 CET