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Volatile Mining Revenues and State Government Budget Decisions

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  • John Freebairn
  • William Griffiths

Abstract

Mining royalties provide a volatile source of revenue for state governments in Australia. We explore the effects of changes in royalty revenue received by a state government on current‐year budget decisions about expenditure, tax revenue and the budget surplus. The literature postulates different models for how lower‐level government budget decisions respond to a revenue windfall from a higher level of government. Empirical evidence on these models over 1998–2019 provides strong evidence that over a half of a royalty windfall becomes a change in budget expenditure. Estimates of changes to tax revenues and the surplus are not definitive nor robust.

Suggested Citation

  • John Freebairn & William Griffiths, 2023. "Volatile Mining Revenues and State Government Budget Decisions," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 56(2), pages 192-203, June.
    • Handle: RePEc:bla:ausecr:v:56:y:2023:i:2:p:192-203
    DOI: 10.1111/1467-8462.12510
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    References listed on IDEAS

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    1. Alexander James, 2015. "US State Fiscal Policy and Natural Resources," American Economic Journal: Economic Policy, American Economic Association, vol. 7(3), pages 238-257, August.
    2. Bornhorst, Fabian & Gupta, Sanjeev & Thornton, John, 2009. "Natural resource endowments and the domestic revenue effort," European Journal of Political Economy, Elsevier, vol. 25(4), pages 439-446, December.
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