Direct Redistribution, Taxation, and Accountability in Oil-Rich Economies- A Proposal- Working Paper 281

Shantayanan Devarajan

No 281, Working Papers from Center for Global Development

Abstract: To enhance efficiency of public spending in oil-rich economies, this paper proposes that some of the oil revenues be transferred directly to citizens, and then taxed to finance public expenditures. The argument is that spending that is financed by taxation—rather than by resource revenues accruing directly to the government—is more likely to be scrutinized by citizens and hence subject to greater efficiency. We develop the case as follows: First, we confirm that public expenditure efficiency is lower in oil-rich countries compared with other developing countries. Second, we develop a theoretical model to explain why citizens’ scrutiny over public expenditure can be increased by transferring oil revenues to citizens and then taxing them. By receiving transfers and then paying taxes, citizens are better informed about the level of government revenue, and they have an incentive to ensure that their taxes are spent on public goods. Third, we show empirically that enhanced citizens’ scrutiny is associated with more efficient government spending decisions and that accountability is stronger in countries that rely more on taxation to finance public spending. We conclude that, while it may be difficult to implement such a proposal in existing oil producers, there is scope for introducing it in some of Africa’s new oil producers.

Keywords: oil; taxation; redistribution of oil revenues; accountability (search for similar items in EconPapers)
JEL-codes: H20 H23 Q32 Q33 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2011-12
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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