Policy Briefs

Oil Rents, Tax Revenues and the Shadow Economy: New Insights

No.

PB 54

Publisher

ERF

Date

November, 2020

Topic

Q3. Nonrenewable Resources and Conservation

E6. Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook

In a nutshell

  • It is often discussed that negative oil revenues may increase pressure for democratization via fiscal channels.
  • A declining oil rents may increase the willingness of the state to collect more taxes, leading to more political economic participation of the people.
  • We revise this argument in the resource curse literature by taking the shadow economy into account.
  • Using a panel data covering 124 countries for the period 1991-2015, we show that a declining oil income may not increase tax efforts of the state under a sizable shadow economy.
  • Democratization in oil-based economics as a result of dropping oil income through the channel of taxes may not realize under a high share of informal economy.
Oil Rents, Tax Revenues and the Shadow Economy: New Insights

Research Fellows

Phoebe W. Ishak

Postdoc Aix-Marseille School of Economics

Oil Rents, Tax Revenues and the Shadow Economy: New Insights

Research Fellows

Mohammad Reza Farzanegan

Professor in Economics of the Middle East,...