Distributing the Wealth from the Earth

Abstract

This article explains different criteria and mechanisms for distributing extractive industries (EI) revenues between central and local governments across countries and territories. It reveals that institutional or systemic predictors of distribution are not enough to explain different shares of revenue sharing. The proportion of EI revenues effectively transferred to sub‐national governments is neither related to the level of fiscal decentralisation of the countries nor to their federal or unitary nature. We suggest that the relative strength of the sub‐national governments vis-a‐vis the central government as well as the relative alignment of preferences between local and national governments have a significant impact on transferring EI revenues. We conclude that administrative or fiscal decentralisation alone are not sufficient to ensure an effective distribution of natural resource revenues. Effective political decentralisation can reduce vertical asymmetries and ensure a more equitable distribution of wealth across all jurisdictions.