The fiscal effects of natural resource dependency in sub‐Saharan Africa

Abstract

AbstractThis study investigates the fiscal implications of natural resource dependence in resource‐rich sub‐Saharan African economies, particularly focusing on the impact of resource revenues on tax revenues, government spending and national savings to assess the sustainability of natural resource reinvestments. Employing a two‐step system Generalized Method of Moments on a dataset with 672 observations, the study identifies significant reductions in non‐resource tax revenues, government current consumption and overall savings associated with an increase in resource revenues. Conversely, a positive coefficient is noted for public investment. The study underscores the importance of high‐quality institutions in mitigating adverse effects and controlling increased public investments. Recommendations include directing resource revenues towards well‐structured taxation frameworks and investing in efficient institutions to manage current consumption, monitor public investment growth and enhance savings. These measures are crucial for curbing procyclical spending and promoting sustainable development in resource‐rich sub‐Saharan African economies.