Measuring the tax revenues dependency on oil revenues in the rentier states

In this paper, we highlight a new aspect of rent dependency of governments in oil exporter countries. The primary hypothesis in this paper is that oil revenue is one of the tax level determinants in the rentier states. We examined this hypothesis using panel regression analysis and unbalanced panel data from 14 oil exporter countries over the period 1990 to 2010. Our primary finding is that (oil and natural gas) rents are a significant determinant of the tax revenue level in rentier states, and each unit of rent revenues generates approximately 0.2 unit tax revenue for these governments. Our findings could be regarded as a new warning to rentier states’ governments because it demonstrates that in rentier states, governments are more dependent on rents than directly observed. Thus, we think that if oil rents significantly decrease in the near future, rentier states will be faced with more serious problem than they currently believe.