The Political Economy of Fiscal Policy and Economic Management in Oil Exporting Countries
Despite massive oil rent incomes since the early 1970s, the economic performance of oil-exporting countries-with notable exceptions-is poor. While there is extensive literature on the management of oil resources, analysis of the underlying politica...
| Main Authors: | , , |
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2014
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2002/10/2031707/political-economy-fiscal-policy-economic-management-oil-exporting-countries http://hdl.handle.net/10986/19225 |
| Summary: | Despite massive oil rent incomes since
the early 1970s, the economic performance of oil-exporting
countries-with notable exceptions-is poor. While there is
extensive literature on the management of oil resources,
analysis of the underlying political determinants of this
poor performance is more sparse. Drawing on concepts from
the comparative institutionalist tradition in political
science, the authors develop a generalized typology of
political states that is used in analyzing the political
economy of fiscal and economic management in oil-exporting
countries with widely differing political systems. In
assessing performance, the authors focus on issues of
long-term savings, economic stabilization, and efficient use
of oil rents. The comparisons of country experiences suggest
that countries with strong, mature, democratic traditions
have advantages in managing oil rents well because of their
ability to reach consensus, their educated and informed
electorates, and a high level of transparency that
facilitates clear decisions on how to use rents over a long
horizon. Yet even these systems, ensuring cautious use of
oil income is a continuing struggle. Traditional and
modernizing autocracies have also demonstrated their ability
to sustain long decision horizons and implement
developmental policies. But resistance to transparency and
the danger of oil-led spending and expenditure commitments
becoming the major legitimizing force behind the state may
pose risk to the long-term sustainability of their current
development strategies. In contrast, little positive effect
can be expected from the politically unstable, predatory
autocracies, which typically have very short policy horizons
and sometimes the characteristics of "roving
bandit" regimes. Factional democracies, with weak
political parties and highly personalized politics, present
particular challenges because they lack a sufficiently
effective political system to create a consensus among
strong competing interests. Special attention will be needed
to increase transparency and raise public awareness in these
countries. And oil rent makes it more difficult to sustain a
constituency in favor of sound, longer-run economic
management because it weakens incentives for agents to
support checks and balances that impinge on their individual
plans to appropriate the rents. The country comparisons
further demonstrate that technical solutions-such as the
establishment of oil stabilization funds and budgetary
reforms-to enhance transparency and efficiency in the use of
oil rents will not work well unless constituencies can be
developed in support of such measures. |
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