Why Do African Resource-Rich Countries Tax Less Than Resource-Scarce Countries; Distorted

Natural resource endowment offers great opportunities for fiscal resource mobilization throughout the entire chain of operations from exploration to production to exports. However, in the case of African countries, it appears that resource-rich countries have failed to take advantage of their resource wealth to mobilize government revenues for the pupose of financing public investment programs including public infrastructure and investment in social sectors. In fact, resource rich countries have been outperformed by their resource-scarce counterparts in this regard. Is this low performance driven by distorted incentives induced by the natural resource bonanza or a result of the lack of capacity to tax the natural resource industry? The low tax performance may also explain the failure to both develop non-resource based activities (diversification) and to achieve superior performance in public investment. This paper will explore these questions and provide empirical evidence based on panel data from African countries for the period 1980-2007.