Taxation, Accountability, and Cash Transfers: Breaking the Resource Curse

Shantayanan Devarajan and Quy-Toan Do

No 9880, Policy Research Working Paper Series from The World Bank

Abstract: Why is governance in resource-rich countries so poor This paper argues that it is because governments in these countries do not rely on taxation, which is an important instrument for citizens to hold their governments accountable. Using a game-theoretic model, the authors show that the combination of low taxes and weak governance can be an equilibrium in an economy with sizeable mineral revenues. As income from natural resources ultimately declines, replacing it with tax revenues may require governments to give control of these proceeds to citizens, in the form of cash transfers say, as a credible commitment to accountability, thereby breaking the country out of its resource curse.

Keywords: Tax Administration; Public Finance Decentralization and Poverty Reduction; Tax Law; Public Sector Economics; Services & Transfers to Poor; Access of Poor to Social Services; Disability; Economic Assistance; Economic Development; Macro-Fiscal Policy; Economic Adjustment and Lending; Taxation & Subsidies; Inequality (search for similar items in EconPapers)
Date: 2021-12-13
New Economics Papers: this item is included in nep-gth and nep-pbe
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