Manna from Heaven: The Impact of Nonrenewable Resource Revenues on Other Revenues of Resource Exporters in Latin America and the Caribbean

Gonzáles-Castillo, Alberto
Aug 2012
This paper examines the impact of the availability of fiscal revenues from nonrenewable resources on other revenues of Latin American and Caribbean resource-exporting countries. It compares the performance of nonresource revenues in these countries to that in other countries in the region. The effect of resource revenue on nonresource revenue is found to be negative and statistically significant, with structural breaks both over time and across countries. Nonresource revenues have risen considerably, but they are still lower on average than in comparator countries, and the wedge between both groups of countries has widened over time. They also tend to be more volatile. The paper also analyzes the composition of nonresource revenues. It finds that the performance of VAT and nonresource income taxes of resource exporters has been similar to that of other countries, but revenues from other taxes (including excises) have been lower. The paper's findings have important policy implications. Especially for resource exporters with fiscal vulnerabilities to shocks and sustainability issues, strengthening nonresource revenues would be important to create adequate fiscal space to meet expenditure needs. Oil exporters should also consider phasing out their costly, inefficient, and poorly targeted petroleum subsidies, with compensating measures to protect vulnerable groups.