Natural Resources, Institutions and Tax Revenue Mobilization in Sub-Sahara Africa

Abstract

Whether natural resources improve or impede the collection of taxes is still unclear in the literature. Using a sample of Sub-Sahara African countries, this study asserts that the missing link to explaining these differences is the quality of institutions. Using an interaction term for natural resources and institutional quality, we show that institutions are decisive for the contribution of natural resources to tax revenue mobilisation. Our results suggest that more resource revenues impede tax revenue collection only in the absence of good governing institutions. This finding is robust to different econometric specifications, alternative measure of quality of institutions and the type of natural resources.