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Taxation, accountability, and cash transfers: Breaking the resource curse

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  • Devarajan, Shantayanan
  • Do, Quy-Toan

Abstract

Why is governance in resource-rich countries so poor? We argue that it is because governments in these countries do not rely on taxation, which is an important instrument for citizens to hold their governments accountable. Using a game-theoretic model, we show that the combination of low taxes and weak governance can be an equilibrium in an economy with sizeable mineral revenues. As income from natural resources ultimately declines, replacing it with tax revenues may require governments to give control of these proceeds to citizens, in the form of cash transfers say, as a credible commitment to accountability, thereby breaking the country out of its resource curse.

Suggested Citation

  • Devarajan, Shantayanan & Do, Quy-Toan, 2023. "Taxation, accountability, and cash transfers: Breaking the resource curse," Journal of Public Economics, Elsevier, vol. 218(C).
    • Handle: RePEc:eee:pubeco:v:218:y:2023:i:c:s0047272722002183
    DOI: 10.1016/j.jpubeco.2022.104816
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    1. Shi, Junguo & Liu, Yang & Sadowski, Bert M. & Alemzero, David & Dou, Shanshan & Sun, Huaping & Naseem, Sobia, 2023. "The role of economic growth and governance on mineral rents in main critical minerals countries," Resources Policy, Elsevier, vol. 83(C).

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    More about this item

    Keywords

    Natural resource curse; Taxation; Accountability; Credible commitment;
    All these keywords.

    JEL classification:

    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

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