Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/171575
Authors: 
Bretschger, Lucas
Valente, Simone
Year of Publication: 
2010
Series/Report no.: 
Economics Working Paper Series 10/132
Abstract: 
Since 1980, the aggregate income of oil-exporting countries relative to that of oil- poor countries has been remarkably constant despite structural gaps in productivity growth rates. This stylized fact is analyzed in a two-country model where resource- poor (Home) and resource-rich (Foreign) economies display productivity differences but stable income shares due to terms-of-trade dynamics. We show that Home's income share is positively related to the national tax on domestic resource use, a prediction confirmed by dynamic panel estimations for sixteen oil-poor economies. National governments have incentives to deviate from both efficient and laissez-faire allocations. In Home, increasing the oil tax improves welfare through a rent-transfer mechanism. In Foreign, subsidies (taxes) on domestic oil use improve welfare if R&D productivity is lower (higher) than in Home.
Subjects: 
Endogenous Growth
Exhaustible Resources
International Trade
JEL: 
F43
O40
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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