Political Economy of Resource Taxation in Petroleum-Producing Countries

Abstract

Tax rates on resource extraction vary widely between different countries. This paper develops a political economy model of resource taxation, in order to explain the differences in government take, i.e., the share of resource revenues that governments of resource-rich countries claim from the producing companies. The theoretical economic model is confirmed empirically for the case of petroleum: a regression on a data set of 46 countries shows that government take increases when the country's government is autonomous (as opposed to factional), but decreases when the government is benevolent (as opposed to predatory). Government take increases when a country is a petroleum exporter or has large discovered petroleum reserves, but decreases with the size of undiscovered petroleum reserves.

Keywords: political economy, exhaustible resources, depletion, petroleum extraction, fiscal systems, government type

JEL Classification: Q38, H32, H21, D72