Revenue Sharing from Natural Resources: Principles and Practices

Qiao and Shah (this chapter) are concerned with sharing of natural resource revenues. Natural resource revenues, especially non-renewable resource revenues, present special challenges for resource management and sharing of revenues due to special features. The uneven distribution and exhaustible nature of resources—depletion of wealth over time—has serious implications for fiscal sustainability and interjurisdictional and intergenerational equity. In multi-order governance, competing and conflicting goals stand in the way of ideal solutions. Political cohesion and environmental protection considerations require preferential access to resource revenues in producing regions. Economic and social union considerations require national sharing of resource wealth. Only second-best solutions may be feasible in these countries. Such solutions should aim to limit adverse incentives. A second-best solution is the centralization of resource rent taxes and redistribution through a federal fiscal equalization program. Alternately, decentralization of resource rent taxes accompanied by an inter-state (net) equalization program may be desirable.