The Political Economy of Direct Dividend Transfers in Resource-Rich Countries : A Theoretical Consideration

The acceleration of natural resource discoveries across many parts of the developing world has highlighted the urgent need for solutions to the mismanagement of windfalls that has blighted many countries over the past half-century. One proposal inv...

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Bibliographic Details
Main Authors:	McGuirk, Eoin, Rajaram, Anand, Giugale, Marcelo
Format:	Working Paper
Language:	English en_US
Published:	World Bank, Washington, DC 2016
Subjects:	RENT SEEKING PLEDGES CURRENCY APPRECIATION CHECKS DEPOSITS UTILITY FUNCTIONS STOCK STRUCTURAL CHANGE INCOME INTEREST PUBLIC INVESTMENTS EXPECTATIONS GOVERNMENT SPENDING EXCHANGE OPTION EXPORTS DEVELOPING COUNTRIES POLITICAL ECONOMY REVENUES PORTFOLIO WELFARE DIMINISHING RETURNS INCENTIVES EQUILIBRIUM DISCOUNT CAPITAL STOCK PUBLIC ASSETS TAX PARTICIPATION ∗ CONSTRAINT CASH TRANSFER REFERENDUM PAYMENTS WEALTH PLEDGE BENEFICIARIES INTERNATIONAL BANK PENSION DEVELOPING COUNTRY CREDIBILITY DEVELOPMENT INFLUENCE BENEFICIARY ALLOCATION OF CAPITAL COSTS PARTICIPATION CONSTRAINT VOTERS CURRENCY DEVELOPMENT ECONOMICS IMMUNIZATION INCOME GROWTH RENT ECONOMETRICS OPTIONS GLOBALIZATION CRITERIA DEBT RETURN LENDERS OPEN ECONOMY DIVIDENDS RESERVES UTILITY NATURAL RESOURCES NEGATIVE SHOCKS CASH TRANSFERS COMMODITY PRICE FINANCE BANK POLICY PUBLIC INVESTMENT TAXES EXPENDITURE CONSUMPTION CREDIT CONSTRAINTS GOOD TAX RATE FRAUD ECONOMIC PERFORMANCE TRANSPARENCY COUPONS FUTURE VALUE COMPETITIVENESS RETURNS CREDIT PERMANENT INCOME GOVERNMENT EXPENDITURE UTILITY FUNCTION INVESTMENT PROJECTS EXPECTED VALUE CONTRACT PRODUCTIVE ASSETS EXPENDITURES PROPERTIES INSTITUTIONAL CAPACITY SHARES OPPORTUNITY COSTS ASSETS MARKET ECONOMICS PUBLIC DEBT TAXATION PERMANENT INCOME HYPOTHESIS TRADE INTERESTS GOODS SECURITY FINANCIAL MARKET INVESTMENT EXPECTED UTILITY SHARE POVERTY FISCAL BURDENS FINANCIAL ASSETS ADVERSE EFFECT REVENUE INVESTMENTS LENDING GOVERNMENT LENDING RISK AVERSION PIH PUBLIC SPENDING DIRECT INVESTMENTS COMMODITY PRICES OUTCOMES MARGINAL UTILITY LESS DEVELOPED COUNTRIES MARGINAL UTILITY OF CONSUMPTION DEVELOPMENT POLICY HUMAN DEVELOPMENT INCOME VOLATILITY
Online Access:	http://documents.worldbank.org/curated/en/2016/02/25963840/ http://hdl.handle.net/10986/23894

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Summary:	The acceleration of natural resource discoveries across many parts of the developing world has highlighted the urgent need for solutions to the mismanagement of windfalls that has blighted many countries over the past half-century. One proposal involves distributing annually a share of resource rents to citizens in the form of direct dividend transfers. Although many scholars and policy makers have discussed the potential economic and political ramifications of the proposal from a normative perspective, few have analyzed positively the conditions under which such a policy may emerge as a politically rational choice. This policy research paper fills that gap by modeling the decision of political leaders to allocate resource revenues between cash transfers, public goods, power-preserving activities, and personal consumption. The analysis finds first that propitious political conditions, including competitive elections, undeveloped patronage networks, and a high degree of budgetary accountability, increase the share of resource revenues to be spent on citizens' welfare. The paper then shows that a high poverty headcount and inefficient public institutions will each strengthen the political incentive to provide direct dividend transfers relative to public goods. This combination of conditions is rare, which may explain why relatively few countries have implemented or plan to implement direct dividend transfers.

The Political Economy of Direct Dividend Transfers in Resource-Rich Countries : A Theoretical Consideration

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