Optimal fiscal management in an economy with resource revenue‐financed government‐linked companies

We present a dynamic stochastic general equilibrium (DSGE) model in which resource-rich government allocates its excess resource rents between stabilization fund and the facilitation of costly domestic fund-raising activities sovereign wealth funds (SWF), holds portfolio government-linked companies (GLCs). Despite being less productive efficient, GLCs' operation benefits from scale economies tied to sector: profitability is procyclical commodity shocks. The estimated Malaysia using Bayesian approach, with results suggesting business cycle heavily influenced by Based on this, we solve numerically for socially optimal combination savings allocation. find allocation be sub-optimal, regardless structural This suggests that Malaysian economy might have hit absorptive capacity constraint (i.e., saturated GLCs).