Sustainable strategies for boosting profitability: Unveiling the connection between fiscal policy and natural resource efficiency

Jiangwei Kong and Mengxi Gao

Resources Policy, 2024, vol. 88, issue C

Abstract: In this study, we delve into the vital relationship between fiscal policy and natural resource efficiency, aiming to uncover sustainable strategies that can enhance profitability. States are recommended to establish fiscal restrictions under three circumstances: high levels of internal institutional quality, significant rent from natural assets, and external pressure to apply these instructions. Resource-rich countries that depend on natural reserve rents are less likely to enact efficient fiscal restrictions, even after accounting for characteristics like democracies and domestic quality of institutions, according to an analysis of panel data covering 166 countries from 1985 to 2021. The negative effect of a wealth of natural resources on the possibility of enacting fiscal rules is compounded by the country's weak institutions. As a result of IMF fiscal constraints, more countries are likely to implement fiscal rules, which may help alleviate the resource curse. This paper also finds that fiscal conditions imposed by the IMF raise the probability of nations adopting fiscal regulations, suggesting that there are ways for countries to mitigate the effects of the resource curse. Furthermore, these results remain robust across different datasets, model parameters, and estimate methods, including the instrumental parameter method.

Keywords: Natural resource efficiency; Resource curse; Fiscal policy (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jrpoli:v:88:y:2024:i:c:s0301420723011856

DOI: 10.1016/j.resourpol.2023.104474

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