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    Natural resources, decentralization, and risk sharing: Can resource booms unify nations?

    Access Status
    Fulltext not available
    Authors
    Perez-Sebastian, F.
    Raveh, Ohad
    Date
    2016
    Type
    Journal Article
    
    Metadata
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    Citation
    Perez-Sebastian, F. and Raveh, O. 2016. Natural resources, decentralization, and risk sharing: Can resource booms unify nations?. Journal of Development Economics. 121: pp. 38-55.
    Source Title
    Journal of Development Economics
    DOI
    10.1016/j.jdeveco.2016.02.003
    Additional URLs
    https://www.journals.elsevier.com/journal-of-development-economics
    ISSN
    0304-3878
    URI
    http://hdl.handle.net/20.500.11937/61721
    Collection
    • Curtin Research Publications
    Abstract

    © 2016 Elsevier B.V.Previous studies imply that a positive regional fiscal shock, such as a resource boom, strengthens the desire for separation. In this paper we present a new and opposite perspective. We construct a model of endogenous fiscal decentralization that builds on two key notions: a trade-off between risk sharing and heterogeneity, and a positive association between resource booms and risk. The model shows that a resource windfall causes the nation to centralize as a mechanism to either share risk and/or prevent local capture, depending on the relative bargaining power of the central and regional governments. We provide cross country empirical evidence for the main hypotheses, finding that resource booms: (i) decrease the level of fiscal decentralization with no U-shaped patterns, (ii) cause the former due to risk sharing incentives primarily when regional governments are relatively strong, and (iii) have no effect on political decentralization.

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