Why Do Resource-rich African Countries Tax less than resource scarce Countries?

Natural resource endowment offers great opportunities for fiscal resource mobilization throughout the entire chain of operations from exploration to production to exports. However, in the case of African countries, it appears that resource-rich countries have not been able to take full advantage of their resource wealth to mobilize government revenues for the purpose of financing public investment programs including public infrastructure and investment in social sectors. In fact, some resource rich countries have been outperformed by their resource-scarce counterparts in this regard. Is this low performance driven by distorted incentives induced by the natural resource bonanza or a result of the lack of capacity to tax the natural resource industry? The low tax performance may also explain the failure both to develop non-resource based activities (diversification) and to promote in public investment. This paper explores these questions and provides empirical evidence based on data on African countries for the period 1980-2007.

For comparison purposes the analysis is also performed on an extended sample including countries from Latin America, Asia, and the Middle East for the period 1980-2007.