Revenue from resources such as oil may fill government coffers, but in reducing the need for income taxes it diminishes countries’ incentive to create the political and civic institutions that simultaneously enable taxation and support a market economy with large, efficient companies that benefit the entire population, say Timothy Besley of the London School of Economics and Torsten Persson of Stockholm University.

A 1pc increase in the share of natural-resource revenue in government income is associated with a 1.4pc lower share of taxation in GDP. This contributes to resource-dependent countries’ remaining hamstrung by powerful elites, a large informal economy of street vendors and village shops, and weak civil rights.

(Source: Journal of Economic Perspectives)

Published in Dawn, Economic & Business, January 26th , 2015

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