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Commodity dependence and fiscal capacity

  • Mauricio Cárdenas
  • Santiago Ramírez
  • Didem Tuzemen

This paper shows that higher commodity dependence reduces the government's incentive to invest in fiscal capacity. After developing a model that makes this prediction, evidence is provided supporting the view that countries more dependent on commodities (whose rents can be easily appropriated by the government, such as oil) have weaker fiscal capacity. Also, fiscal capacity is found to improve less over time in commodity dependent countries relative to countries where commodity exports play a less relevant role. These empirical results are obtained in a panel dataset with estimators that address endogeneity issues.

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Paper provided by Federal Reserve Bank of Kansas City in its series Research Working Paper with number RWP 11-08.

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Date of creation: 2011
Date of revision:
Handle: RePEc:fip:fedkrw:rwp11-08
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  1. Anne D. Boschini & Jan Pettersson & Jesper Roine, 2007. "Resource Curse or Not: A Question of Appropriability," Scandinavian Journal of Economics, Wiley Blackwell, vol. 109(3), pages 593-617, 09.
  2. Blundell, R. & Bond, S., 1995. "Initial Conditions and Moment Restrictions in Dynamic Panel Data Models," Economics Papers 104, Economics Group, Nuffield College, University of Oxford.
  3. Jeffrey D. Sachs & Andrew M. Warner, 1995. "Natural Resource Abundance and Economic Growth," NBER Working Papers 5398, National Bureau of Economic Research, Inc.
  4. Torvik, Ragnar, 2002. "Natural resources, rent seeking and welfare," Journal of Development Economics, Elsevier, vol. 67(2), pages 455-470, April.
  5. Sambit Bhattacharyya & Roland Hodler, 2008. "Natural Resources, Democracy and Corruption," Department of Economics - Working Papers Series 1047, The University of Melbourne.
  6. Mauricio Cárdenas & Didem Tuzemen, 2011. "Under-investment in state capacity: the role of inequality and political instability," Research Working Paper RWP 11-07, Federal Reserve Bank of Kansas City.
  7. Jeffrey D. Sachs & Andrew M. Warner, 1995. "Economic Convergence and Economic Policies," Harvard Institute of Economic Research Working Papers 1715, Harvard - Institute of Economic Research.
  8. M Arellano & O Bover, 1990. "Another Look at the Instrumental Variable Estimation of Error-Components Models," CEP Discussion Papers dp0007, Centre for Economic Performance, LSE.
  9. Baland, Jean-Marie & Francois, Patrick, 2000. "Rent-seeking and resource booms," Journal of Development Economics, Elsevier, vol. 61(2), pages 527-542, April.
  10. Sachs, Jeffrey D. & Warner, Andrew M., 1999. "The big push, natural resource booms and growth," Journal of Development Economics, Elsevier, vol. 59(1), pages 43-76, June.
  11. Catherine Norman, 2009. "Rule of Law and the Resource Curse: Abundance Versus Intensity," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 43(2), pages 183-207, June.
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