* Article: Resource Rents, Redistribution, and Halving Global Poverty: The Resource Dividend. Paul Segal. World Development, Volume 39, Issue 4, April 2011, Pages 475–489

From the Abstract:

“This paper considers the proposal that each country distributes its resource rents directly to citizens as a universal and unconditional cash transfer, or Resource Dividend, and estimates its potential impact on global poverty for the years 2000–06. Using a global dataset on resource rents and the distribution of income, I find that if every developing country implemented the policy then the number of people living below $1-a-day would be cut by between 27% and 66%, depending on the year and the assumptions made. Looking ahead, poverty could be better than halved as long as commodity prices do not drop below their 2004 level.”

An excerpt from the introduction, by Paul Segal:

“In this paper I ask what would happen if, contrary to J. Paul Getty’s prediction, mineral rights were in fact distributed more equitably. In particular, I consider the scheme under which each country taxes the rents due to their natural resources, and distributes the proceeds directly and unconditionally back to every adult citizen on an equal basis. I call this scheme the Resource Dividend (RD). Versions of it have appeared in different literatures going back to Thomas Paine in 1795, with recent proposals including the distribution of oil revenues in Iraq. But two developments make its more general application of particular current relevance. First, resource nationalism and resource ownership rose in importance amid the dramatic rise in resource prices up to mid-2008. Second, the first Millennium Development Goal, adopted by the United Nations in 2000, is to halve global poverty at the $1-a-day line from its 1990 level by 2015. I estimate the global impact of the policy on poverty and find that if enough poor countries were to adopt the RD then it would be sufficient to achieve the first Millennium Development Goal: extreme global poverty would be cut by half.

While I estimate its global impact, the RD is a national, not international policy, and in recent years versions have been proposed for Iraq (Palley 2003, Birdsall and Subramanian 2004), Nigeria (Sala-í-Martín and Subramanian 2003), and Bolivia (Durán et al. 2007). Sandbu (2006) discusses the scheme in more general terms. These authors cite the possible advantages of the policy in the context of substantial resource wealth, where direct distribution of revenues may help to alleviate the resource curse. In addition to this argument I discuss potential advantages for all countries, including those with modest resource wealth. First, as already mentioned, it would substantially reduce poverty. Second, by being levied only on rents, the scheme implies none of the economic distortions or efficiency loss that other redistributive schemes may risk.

Third, it provides an incentive to informal workers and individuals with little or no formal interaction with the state to register with the fiscal system. Finally, there is a moral and legal argument that by the nature of rents, no individual has a special claim to them, so the only morally defensible distribution is an equal distribution.

The distribution of resource rents is always and everywhere a political decision, not an economic outcome. Unlike the value of most output, there is no one to whom they “naturally” accrue. Put another way, in other sectors taxes and transfers act on a pre-intervention distribution, but there is no pre-intervention distribution of resource rents. In practice most countries have assigned ownership of resources to the government, making the government the recipient of resource rents. This political decision is followed by political decisions regarding expenditures of these rents, which have a direct distributional impact. It is less obvious but equally important that if resource rents substitute for other taxation then individuals benefit according to how their actual tax bill compares with the counterfactual situation of the absence of the resource. Thus the elimination of taxation of the private sector, as in some resource-rich countries, should not be mistaken for a distribution-neutral tax policy. The RD is therefore no more political a policy than any other distribution of resource rents.

The policy may appear radical, and its global implementation would indeed have a dramatic effect. But as a redistributive policy it is relatively modest in magnitude compared with existing policies in Europe. I show that cash benefits in the EU15 comprise 6.6 percent of GDP, while resource rents comprise under 6 percent of GDP in most countries, including those that account for most of the global poverty reduction under the Resource Dividend.”

More information in the finalized draft of the same paper here: http://www.oxfordenergy.org/wpcms/wp-content/uploads/2010/11/SP22-ResourceRentsRedistributionandHalvingGlobalPovertThe-ResourceDividend-Paulsegal-2009.pdf]

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