Creating a Favourable Deployment Mechanism of Oil and Gas Revenues with Regard to Volatile Oil Prices: The Case of Azerbaijan

This paper studies optimal mechanisms of intergenerational fair distribution of oil and gas revenues in terms of oil price shocks in the case of Azerbaijan. In order to determine optimal utilization mechanism of oil and gas revenues the following models: real constant expenditure (permanent income hypothesis), nominal constant expenditure, stable diminishing expenditure and stable rate diminishing expenditure, were tested on the basis of three alternative oil and gas export prices. Finally the research suggests the statistical method to calculate crude oil reference price for the midterm fiscal planning and the flexible mechanism which can be revised with regard to oil price uncertainty.