Dutch Disease : How to Mitigate Its Effects

One of the most important problems of resource-rich countries is Dutch disease whose main feature is the appreciation of the domestic currency that reduces the competitiveness of tradable sector and redirects resources from tradable sector to the natural resource and non-tradable sectors which in turn results in increase in non-resource trade deficit.Paper considers different ways to mitigate Dutch disease effects in terms of efficient allocation of resource and argues that: 1) reduction in profit tax rate is preferable to other ways of neutralizing Dutch disease, 2) as selective support for certain sectors leads to misallocation of resources, reduction in profit tax should extend to all producers and not just to tradable sector