Oil Curse, Taxation and Democracy in Oil Dependent Countries; Application of GMM System Approach

In the past few decades, the harmful effect of dependence of governmentson the income of abundant oil resources in the economy of developing countries has received a lot of attention; So that the discussion about its results, such as the wealth of abundant oil resources, can negatively affect the governance and state of democracy of a country has been raised. The political and economic inefficiency known as "curse of oil" is a complex and structural phenomenon which is mainly caused by poor management or poor investment of oil revenues by the governments of oil producing countries. The purpose of this research is to compare the relationship between oil revenues and tax revenues on democracy in oil-dependent countries with medium income and also oil-dependent countries with high income using the Systemic Generalized Moments (SYS-GMM) approach. For this purpose, data related to the dependent variable of democracy and independent variables, oil revenues, tax revenues, economic growth, GDP per capita and population for 10 countries with high oil income and 21 countries with medium oil income including Iran during the years 1980 to 2018 was analyzed. In summary, the results of the study and estimation of the model showed that with the increase of oil and tax revenues in countries with high oil income, the level of democracy has improved; While for countries with medium oil income, the increase in oil and tax revenues leads to a decrease in the level of democracy and the phenomenon of oil curse is confirmed.