Economic Sanctions and Taxation of Natural Resource Rent: Evidence From Spatial Analysis

This paper examines the effects of economic sanctions on the taxation of natural resources in targeted countries, distinguishing between de jure and de facto measures of the average effective tax rate (AETR) on resource rents. The analysis relies on a sample of 20 African countries for the de jure AETR and a global panel of 75 developing and developed countries for the de facto AETR over the period 2000–2020. Using a Spatial Durbin Model that accounts for spatial spillovers in both taxation and sanctions, we document three main results. First, both resource taxation (de jure and de facto) and economic sanctions exhibit significant spatial dependence across neighbouring countries. Second, economic sanctions affect de jure rent capture, while their impact on de facto AETR is limited and operates mainly through indirect and spillover channels rather than through a direct strengthening of effective tax enforcement. Third, the effects vary by the type and origin of sanctions, with financial sanctions exerting stronger effects than trade sanctions, and UN and US sanctions proving more influential than EU sanctions. The results are robust to alternative measures of sanction intensity, proxied by the number of sanctions imposed, as well as to alternative estimation strategies addressing endogeneity, and dynamic treatment effects. These findings suggest that sanctioned countries adjust formal tax policy in response to sanctions, which contribute to limit the adverse effect of sanctions on their de facto taxation of the resource rent.