Democracy, political instability, and government tax effort in hydrocarbon-dependent countries

The study provides empirical evidence on the associations between the political environment and government tax effort and revenues in hydrocarbon-dependent countries, which has been overlooked in the literature. The results show that democratic authority pattern and political stability are associated with greater tax effort and revenues from non-hydrocarbon sources. Democracy produces its strongest positive impact in the long run and when it is well established. An autocratic authority pattern and political instability are negatively related to tax effort and revenues. The non-hydrocarbon tax offset resulting from hydrocarbon revenue is lower than what reported in the literature when considering political structure features. Political instability conditions the relationship between hydrocarbon and non-hydrocarbon revenues. Therefore, efforts to enhance the tax system and mobilize greater domestic revenues should pay attention to political reforms that improve democracy and political inclusion and reduce political instability and conflict. These results are robust to different estimation techniques, alternative measures of revenues, and various attributes of political instability and democracy.