A Conditional Revenue Curse? Progressive Taxation and Resource Rents in Developing Countries

Kodjovi Eklou

Cahiers de recherche from Departement d'économique de l'École de gestion à l'Université de Sherbrooke

Abstract: One of the main obstacles to the sustainability of governments’ revenues in developing countries is the dependency on the rent generated by nonrenewable natural resources. Resource-rich countries have weak incentives to design and maintain efficient tax systems. I consider a theoretical model where the government of a resource-rich country, has to decide whether to undertake a costly investment in its ability to collect taxes and I incorporate progressive income tax. The model predicts that a resource-rich country has more incentives to invest in its ability to collect tax revenues, the more progressive is the tax schedule because expected returns to that investment may be higher. Following a resource windfall, countries with a high level of progressivity collect more tax revenues than their counterparts with a low level of progressivity.

Keywords: Natural resources; Revenue curse; Fiscal capacity; Progressive taxation; Developing countries. (search for similar items in EconPapers)
Pages: 52 pages
Date: 2016-07
New Economics Papers: this item is included in nep-pbe
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Persistent link: https://EconPapers.repec.org/RePEc:shr:wpaper:16-03

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