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Institutions and Macroeconomic Policies in Resource-Rich Arab Economies$
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Kamiar Mohaddes, Jeffrey B. Nugent, and Hoda Selim

Print publication date: 2019

Print ISBN-13: 9780198822226

Published to Oxford Scholarship Online: July 2019

DOI: 10.1093/oso/9780198822226.001.0001

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How to Use Oil Revenues Efficiently

How to Use Oil Revenues Efficiently

(p.218) 8 How to Use Oil Revenues Efficiently
Institutions and Macroeconomic Policies in Resource-Rich Arab Economies

Shantayanan Devarajan

Oxford University Press

Oil-rich countries systematically misallocate public expenditures relative to non-oil countries—by favoring consumption over capital, and within consumption, inefficient subsidies and public sector wages over targeted transfers. Furthermore, for given levels of expenditure, value for money is considerably less in oil-rich countries. This chapter argues that the reason for this inefficiency is that oil revenues go directly to the government without passing through the hands of the citizens, as is the case with tax revenues. As a result, governments in oil countries are less accountable for public expenditure, which leads to inefficient spending. To improve public spending efficiency, we propose that all oil revenues be distributed directly to citizens, and the resources that government needs be raised through taxation. We show that such a scheme improves the efficiency of public spending. We consider possible obstacles to such a reform and show that they have been overcome by technology, politics, and global events.

Keywords:   oil revenues, public expenditure, transfers, taxation, oil-rich countries

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