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Taxation, Accountability, and Cash Transfers : Breaking the Resource Curse

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  • Devarajan,Shantayanan
  • Do,Quy-Toan

Abstract

Why is governance in resource-rich countries so poor This paper argues that it is becausegovernments in these countries do not rely on taxation, which is an important instrument for citizens to hold theirgovernments accountable. Using a game-theoretic model, the authors show that the combination of low taxes and weakgovernance can be an equilibrium in an economy with sizeable mineral revenues. As income from natural resourcesultimately declines, replacing it with tax revenues may require governments to give control of these proceeds tocitizens, in the form of cash transfers say, as a credible commitment to accountability, thereby breaking the countryout of its resource curse.

Suggested Citation

  • Devarajan,Shantayanan & Do,Quy-Toan, 2021. "Taxation, Accountability, and Cash Transfers : Breaking the Resource Curse," Policy Research Working Paper Series 9880, The World Bank.
    • Handle: RePEc:wbk:wbrwps:9880
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    References listed on IDEAS

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