Resource Dependence and Fiscal Effort in Sub-Saharan Africa

IMF Working Papers, August 28, 2013

Source details

Authors: Alun H. Thomas, Juan P Trevino
Date: August 28, 2013
Core question: Whether the availability of higher resource revenue in resource-exporting countries in sub-Saharan Africa has led to lower taxation effort of other revenue categories.
Analytical focus: Relationship between non-resource tax revenue and (a) resource revenue, and (b) statutory tax rates.
Key contextual point: High natural resource prices in recent years have resulted in sizeable increases in fiscal revenue for many resource-exporting countries in sub-Saharan Africa, but this revenue source is volatile.

Evidence suggests that nonresource revenue is negatively influenced by a higher resource revenue-to-GDP ratio.
The lower take up of nonresource taxes in resource-rich countries is correlated with higher levels of corruption.
The correlation with corruption suggests weaker institutions affect nonresource revenue through incentives for tax evasion and/or large tax exemptions.

Resource-rich countries should rely on other forms of taxation to help fund public expenditure, given the volatility of resource revenue.
Institutional quality matters: higher corruption is associated with weaker nonresource tax performance, indicating that addressing corruption and strengthening institutions could mitigate the negative impact of resource dependence on nonresource revenue.

Subjects: Corporate income tax, Corruption, Crime, Environment, Natural resources, Revenue administration, Tax evasion, Taxes, Value-added tax
Keywords: Corporate income tax, Corruption, exhaustible resources, natural resource export, Natural resources, oil, resource, resource booms, resource country, resource revenue, resource rich, revenue effort, revenue ratio, Sub-Saharan Africa, Tax law, taxation, Value-added tax, WP