Fiscal dependence on extractive revenues: Measurement and concepts

Abstract

This paper proposes a new measure of Fiscal Dependence on Extractive revenues: FDE. The FDE estimates, simply, the extent to which extractive-producing countries can fund day-to-day government spending with non-extractive revenues. By focusing specifically on the fiscal aspect of dependency, - and tying the earning of extractive revenues to government expenditure needs - the FDE allows us to better understand those contexts where countries are dependent on the revenue from extractive industries to fund the day-to-day spending of government, versus those where extractive revenues are more likely to represent a boon, or a stream that can be invested in the future wellbeing of a country's citizens. Whilst fairly strongly correlated with existing measures of extractive dependence, the FDE ultimately tells a different story regarding countries' fiscal positions and resulting vulnerability to shocks to revenue or government spending. Amongst extractive-producing countries, fiscal dependency is correlated with lower growth, human development and levels of democracy, on average.