Does natural resource hinder, taxation capacity and accountability? A case of selected oil abundant developing countries

Abstract

Abstract This study aims to explore the mechanism that corroborates the political-economy explanation of the resource curse in oil rich developing countries. This mechanism elucidates that increasing resource rents provides higher incentives for leaders to remain in power, through a deliberate refusal to improve taxation capacity, which would, in turn, reduce the tax burden on its citizens to reduce their demand for accountability. Using a panel data set for 25 oil producing developing countries for the period 1996–2011, the study demonstrated that oil abundant developing countries lack adequate taxation capacity which influences fiscal contract through taxation of the citizens and minimises the scrutiny of government and the demand for accountability. In turn, the economy is plagued by inadequate provision of public goods and a limited means to raise revenue to finance government expenditure. The empirical analysis supports this mechanism. To this regard, it concludes that the presence of oil in the selected countries can undermine accountability.