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Power Fragmentation and the Resource Curse: The Tax Expenditure Channel

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  • Rabah Arezki

    (Harvard Kennedy School, CERDI - Centre d'Études et de Recherches sur le Développement International - IRD - Institut de Recherche pour le Développement - CNRS - Centre National de la Recherche Scientifique - UCA - Université Clermont Auvergne, FERDI - Fondation pour les Etudes et Recherches sur le Développement International)

  • Grégoire Rota-Graziosi

    (CERDI - Centre d'Études et de Recherches sur le Développement International - UCA [2017-2020] - Université Clermont Auvergne [2017-2020] - CNRS - Centre National de la Recherche Scientifique, FERDI - Fondation pour les Etudes et Recherches sur le Développement International)

Abstract

This paper explores the economic consequences of (taxing) power fragmentation using both theory and data. We first formalize tax policy as the result of interministerial competition where the Minister of Finance (‘Guardian') and the Minister of Mines ('Spender') have distinct objective functions, whereby the former attempts to stop the latter from extending tax incentives to attract investment in the sector. Second, we empirically document that the relative proximity (based on places of birth or co-ethnicity) of the Minister of Mines to the Chief Executive significantly increases tax expenditures from incentives—and reduces the collection of overall tax revenues. The results indicate a novel channel for the resource curse, hinging on executive taxing power fragmentation—rather than changes in relative prices as in the standard Dutch disease model.

Suggested Citation

  • Rabah Arezki & Grégoire Rota-Graziosi, 2026. "Power Fragmentation and the Resource Curse: The Tax Expenditure Channel," Working Papers hal-05625262, HAL.
    • Handle: RePEc:hal:wpaper:hal-05625262
    Note: View the original document on HAL open archive server: https://hal.science/hal-05625262v1
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