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Foreign aid and oil taxes: helping the poor in oil-rich countries

Published online by Cambridge University Press:  27 March 2012

Ruxanda Berlinschi  and
Julien Daubanes
Ruxanda Berlinschi
Affiliation:
LICOS, Centre for Institutions and Economic Performance, Catholic University of Leuven, Belgium. Email: ruxanda.berlinschi@econ.kuleuven.be
Julien Daubanes
Affiliation:
CER-ETH at ETHZ, Swiss Federal Institute of Technology Zurich, Zürichbergstrasse 18, 8092 Zurich, Switzerland. Tel: +41 44 632 24 27. Fax: +41 44 632 13 62. Email: jdaubanes@ethz.ch
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Abstract

This paper proposes a theoretical analysis of the joint impact of foreign aid and oil taxes on the revenues of a rich oil importing country (North) and a two-class, oil exporting country (South). Without coordination, oil taxes are strictly higher in the North and the global allocation of oil is inefficient. Moreover, oil taxes in the North extract some of the South's oil rents, undoing the revenue transfers from foreign aid. We show that a policy coordination mechanism reduces inefficiencies and improves global welfare.

Type
Theory and Applications
Information
Environment and Development Economics , Volume 17 , Issue 3 , June 2012 , pp. 249 - 268
Copyright
Copyright © Cambridge University Press 2012

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