Vulnerability of Tax Revenue in Resource-Rich Countries

23 Pages Posted: 22 Feb 2015

See all articles by Christian von Haldenwang

Christian von Haldenwang

Deutsches Institut für Entwicklungspolitik (DIE) - German Development Institute (DIE)

Maksym Ivanyna

World Bank

Date Written: February 19, 2015

Abstract

Conventional wisdom has it that natural resource dependence is associated with increased vulnerability to external shocks emanating from sudden supply and demand changes in the global economy. This paper explores to what extent government revenue in low- and middle-income countries is affected by different kinds of shocks and whether these effects are different for resource-rich as compared to non-resource-rich countries. Based on data from 176 countries between 1980-2010, we measure the elasticity of tax revenue in resource-rich countries with respect to two kinds of shocks: exchange rate pressure and terms of trade shocks. We find that government revenue in resource-rich countries is more volatile, but not necessarily more vulnerable, in particular with regard to terms of trade shocks. Poorer resource-rich countries are more vulnerable than their higher-income counterparts. Vulnerability in resource-rich countries has significantly decreased in the 2000s as compared to previous decades. Introducing institutional variables such as political regime type or bureaucratic quality we find that the general institutional characteristics of a country may not always reflect the quality of its management of natural resources. Still, results provide some support to those arguments that stress the relevance of good governance in the context of the so-called “resource curse”.

Keywords: Taxation, Vulnerability, Political regimes, Democracy, Natural Resources, Resource Curse, Shocks

JEL Classification: E62, E63, H71, O23

Suggested Citation

von Haldenwang, Christian and Ivanyna, Maksym, Vulnerability of Tax Revenue in Resource-Rich Countries (February 19, 2015). Available at SSRN: https://ssrn.com/abstract=2567732 or http://dx.doi.org/10.2139/ssrn.2567732

Christian Von Haldenwang (Contact Author)

Deutsches Institut für Entwicklungspolitik (DIE) - German Development Institute (DIE) ( email )

Tulpenfeld 6
Bonn, 53113
Germany

Maksym Ivanyna

World Bank

1818 H Street, NW
Washington, DC 20433
United States

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