Is the conventional wisdom on resource taxation correct? Mining evidence from African countries' tax legislations

Abstract

Our study reexamines the link between country risk and government take, following research by Adebayo et al. (2021). Our approach complements theirs. We study the mining tax policy choices in an environment of uncertainty and risk country for twenty-one African gold-producing countries. We calculate a de jure government take based on the complete application of laws and regulations for three “representative mines”. Our results reconcile Adebayo et al.'s theoretical model with empirical results. Higher country risk is associated with lower de jure government take. We also show a complex nonlinear relationship between country risk and de jure government take. Finally, our results suggest that stronger political institutions “capture” a lower de jure government take. The coefficient of the interaction term suggests that as the political regime becomes more democratic, the marginal effect of country risk on de jure government revenue becomes increasingly less adverse up to a specific threshold, beyond which it turns positive. We then introduce each political component of country risk and its interaction term to track transmission channels.