Handbook of Fiscal Federalism
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Handbook of Fiscal Federalism

Edited by Ehtisham Ahmad and Giorgio Brosio

This major Handbook addresses fiscal relations between different levels of government under the general rubric of ‘fiscal federalism’, providing a review of the latest literature as well as an invaluable guide for practitioners and policy makers seeking informed policy options. The contributors include leading lights in the field, many of whom have themselves made seminal contributions to the literature.
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Chapter 17: The Assignment of Revenue from Natural Resources

Giorgio Brosio


Giorgio Brosio Introduction: the relevance of the problem There is increasing pressure for recognizing the right of subnational governments and, in some cases, indigenous communities, to a share of natural resources. Rents from natural resources form an important share of subnational budgets in countries where such resources are found. Minerals, petroleum, forests, hydropower energy and fisheries, are the main types of natural resources that generate rents for local governments. Other assets, such as cultural heritage and natural attractions, may be treated akin to natural resources, and generate rents. These assets share the main characteristics of natural resources, namely, limitations on their shortterm supply and variation in their quality. For example, given the unique cultural heritage of the city of Venice, economic rents could be collected using the same tax and non-tax instruments that are used for extracting rents from natural resources. The assignment of revenue from natural resources to subnational levels of government tends to generate rivalries between the constituent units of the same nation – between the central and local levels, and also across local governments. In developing countries with a large and unevenly distributed endowment of natural resources, the sharing of natural resource revenues often puts considerable strains on national unity. There are two reasons for this. First, the rent can be very substantial, as in the case of petroleum, natural gas, diamonds and other valuable minerals. Second, decentralization expands the role of subnational governments and makes them more vocal in pressing for a share of the rents originating...

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