The authors of this working paper, part of CGD’s Oil-to-Cash initiative, build the case for one of the proposal’s main tenets: that distributing oil revenues directly to citizens—and then assessing taxes on that income—leads to greater accountability and more efficient public spending.
The authors first confirm that public expenditure efficiency is lower in oil-rich countries than in other developing countries. Second, they argue that by receiving transfers and then paying taxes, citizens are better informed about the level of government revenue, and they have an incentive to ensure that their taxes are spent on public goods. Third, they show empirically that enhanced citizens’ scrutiny is associated with more efficient government spending decisions and that accountability is stronger in countries that rely more on taxation to finance public spending.
Implementing the proposal in established oil producers may be difficult, but the authors show there is scope for introducing it in some of Africa’s new oil producers.