Essay on Oil Rents

1681 Words Feb 26th, 2016 7 Pages
Do Oil Revenues Affect Taxation? Christopher Skutnik

Oil is an essential commodity to humans, as it powers many goods and services that give us humans a lot of utility. For oil producing countries, the prospects of exporting barrels of oil can be very exciting for fiscal revenues. The effect of oil production on fiscal revenues is largely due to the world oil price. In the last year and a half the price of oil has plummeted from $104/barrel to about $41/barrel today. This sharp decline in the price of oil has certainly hurt fiscal revenues of oil producing countries. It is also very likely that these countries do not enforce taxation. On the other hand, due to the volatile nature of oil prices, it
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The author finds that taxation is not strongly enforced due to high oil revenues. Michael Herb states that a natural resource such as oil reduces the burden on taxation. Apart from just the effect on taxation, the author states that oil revenues are likely to hinder democratization and development.
This paper looks at the effects of oil revenues on taxation. The paper is different from the scholarly articles discussed above in the sense that statistical analysis is used to see the actual effect. There has not been much statistical analysis to see the effect of oil revenues on taxation.
Theory
The hypothesis and focus of this study is to see if oil revenues have an effect on taxation. Major oil producing nations usually do not have high taxes and the majority of fiscal revenues in these countries are generated from oil revenues. As a result of this, taxes are a small percentage of Gross National Product in these countries. To see the effect on taxation, other variables need to be taken into consideration. Included in our model we used a variable to measure the wealth of nations. The variable we used was GDP per capita. The implication of this variable is that wealthier countries will possess a higher GDP per capita, and will have higher tax rates because their citizens will be able to afford higher taxes. The data for GDP/capita ($) and Oil rents (% GDP) were obtained from the World Bank. The dependent variable, which illustrates taxations as a

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