Giving Money Away? The Politics of Direct Distribution in Resource Rich States - Working Paper 231

The governments of resource rich states have several options for how to allocate oil and mineral revenues, including the direct distribution of revenues to their citizens. This paper discusses the political feasibility and political implications of such cash transfers in the specific context of resource-rich states. Identifying the contexts in which this policy is mostly likely to emerge, and understanding the potential governance risks and benefits, will help policymakers to consider the desirability of cash transfers as an allocation choice. Cash transfers could have positive political and governance effects, but they should not be taken for granted. Possible benefits include the creation of a constituency in favor of sound natural resource management, a more level playing field between the state and the citizens, the emergence of broad-based taxation and its positive accountability effects, and less of the principal-agent problems that currently keep resources from serving the public interest. These effects may not play out in all resource-rich states, as transfers coudl end up reflecting rather than reducing the extortion and rentierism that frequent these contexts. Careful country selection, strong understanding of the context, and politically aware program design could increase th elikelihood that cash transfers contribute to more favorable governance outcomes.