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Resource Discovery and the Politics of Fiscal Decentralization

Author

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  • Sambit Bhattacharyya

    (Department of Economics, University of Sussex)

  • Louis Conradie

    (Department of Economics, University of Sussex)

  • Rabah Arezki

    (Research Department, IMF)

Abstract

If the central government is a revenue maximizing Leviathan then resource discovery and democratization should have a discernible impact on the degree of fiscal decentralization. We systematically explore this effect by exploiting exogenous variation in giant oil and mineral discoveries and permanent democratization. Using a global dataset of 77 countries over the period 1970 to 2012 we find that resource discovery has very little effect on revenue decentralization but induces expenditure centralization. Oil discovery appears to be the main driver of centralization and not minerals. Resource discovery leads to centralization in locations which have not experienced permanent democratization. Tax and intergovernmental transfers respond most to resource discovery shocks and democratization whereas own source revenue, property tax, educational expenditure, and health expenditure do not seem to be affected. Higher resource rent leads to more centralization and the effect is moderated by democratization.

Suggested Citation

  • Sambit Bhattacharyya & Louis Conradie & Rabah Arezki, 2016. "Resource Discovery and the Politics of Fiscal Decentralization," Working Paper Series 08916, Department of Economics, University of Sussex Business School.
    • Handle: RePEc:sus:susewp:08916
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    Cited by:

    1. Sambit Bhattacharyya & Michael Keller, 2021. "Resource Discovery and the Political Fortunes of National Leaders," Economica, London School of Economics and Political Science, vol. 88(349), pages 129-166, January.
    2. Mamo, Nemera & Bhattacharyya, Sambit & Moradi, Alexander, 2019. "Intensive and extensive margins of mining and development: Evidence from Sub-Saharan Africa," Journal of Development Economics, Elsevier, vol. 139(C), pages 28-49.
    3. Keisuke Okada & Sovannroeun Samreth, 2021. "Oil bonanza and the composition of government expenditure," Economics of Governance, Springer, vol. 22(1), pages 23-46, March.
    4. Nemera Mamo & Sambit Bhattacharyya, 2018. "Natural Resources and Political Patronage in Africa: An Ethnicity Level Analysis," Working Paper Series 0418, Department of Economics, University of Sussex Business School.
    5. Bin Amin, Sakib & Taghizadeh-Hesary, Farhad & Khan, Farhan & Manal Rahman, Faria, 2024. "Does technology have a lead or lag role in economic growth? The case of selected resource-rich and resource-scarce countries," Resources Policy, Elsevier, vol. 89(C).
    6. Zuo, Na & Zhong, Hua, 2020. "Can resource policy reverse the resource curse? Evidence from China," Resources Policy, Elsevier, vol. 68(C).
    7. Maria Cadaval Sampedro & Ana Herrero Alcalde & Santiago Lago-Peñas & Jorge Martinez-Vazquez, 2022. "Extreme events and the resilience of decentralized governance," Working Papers. Collection A: Public economics, governance and decentralization 2212, Universidade de Vigo, GEN - Governance and Economics research Network.
    8. Chachu, Daniel Ofoe, 2020. "Domestic revenue displacement in resource-rich countries: What’s oil money got to do with it?," Resources Policy, Elsevier, vol. 66(C).
    9. Lin, Boqiang & Zhou, Yicheng, 2021. "Does fiscal decentralization improve energy and environmental performance? New perspective on vertical fiscal imbalance," Applied Energy, Elsevier, vol. 302(C).
    10. Shahbaz, Muhammad & Destek, Mehmet Akif & Okumus, Ilyas & Sinha, Avik, 2019. "An empirical note on comparison between resource abundance and resource dependence in resource abundant countries," Resources Policy, Elsevier, vol. 60(C), pages 47-55.
    11. Christopher A. Hartwell & Roman Horvath & Eva Horvathova & Olga Popova, 2019. "Democratic Institutions, Natural Resources, and Income Inequality," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 61(4), pages 531-550, December.
    12. Abdelwahed, Loujaina, 2020. "More oil, more or less taxes? New evidence on the impact of resource revenue on domestic tax revenue," Resources Policy, Elsevier, vol. 68(C).
    13. Keller, Michael, 2020. "Wasted windfalls: Inefficiencies in health care spending in oil rich countries," Resources Policy, Elsevier, vol. 66(C).
    14. Nouf Alsharif & Sambit Bhattacharyya, 2024. "Oil discovery, boom‐bust cycle and manufacturing slowdown: Evidence from a large industry level dataset," Review of Development Economics, Wiley Blackwell, vol. 28(2), pages 406-431, May.
    15. Francisco J. Delgado & Maria J. Presno, 2023. "Evolution of Fiscal Decentralisation in OECD Countries: A Club Convergence Analysis," The AMFITEATRU ECONOMIC journal, Academy of Economic Studies - Bucharest, Romania, vol. 25(63), pages 558-558, April.
    16. Arrouna Keita & Camelia Turcu, 2020. "Natural Resource Discoveries and Fiscal Discipline," Working Papers 2020.07, International Network for Economic Research - INFER.
    17. Nemera Gebeyehu Mamo, 2018. "Essays on natural resources in Africa: local economic development, multi-ethnic coalitions and armed conflict," Economics PhD Theses 0518, Department of Economics, University of Sussex Business School.

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    More about this item

    Keywords

    Resource discovery; Resource rent; Democratization; Fiscal decentralization;
    All these keywords.

    JEL classification:

    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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