Volatile Mining Revenues and State Government Budget Decisions

John Freebairn and William Griffiths

Australian Economic Review, 2023, vol. 56, issue 2, 192-203

Abstract: Mining royalties provide a volatile source of revenue for state governments in Australia. We explore the effects of changes in royalty revenue received by a state government on current‐year budget decisions about expenditure, tax revenue and the budget surplus. The literature postulates different models for how lower‐level government budget decisions respond to a revenue windfall from a higher level of government. Empirical evidence on these models over 1998–2019 provides strong evidence that over a half of a royalty windfall becomes a change in budget expenditure. Estimates of changes to tax revenues and the surplus are not definitive nor robust.

Date: 2023
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