Internal Conflict Risk and Political Curse of Oil Resources in Iran: Emphasizing the Role of Fiscal Decentralization

Using a smooth transition regression (STR) model, this article empirically investigated the effect of oil resources abundance on the internal conflict risk (hypothesis the political curse of oil resources) in Iran with regard to the role of fiscal decentralization during the period of 1994-2019. Also, including a transfer function with a threshold parameter that represents a two-regime model is sufficient to specify the nonlinear relationship between the studied variables. The results show that the threshold level is 25.14 and the slope parameter is estimated at 12.75. In the first regime, oil rent had a positive and significant effect on the internal conflict risk (confirming hypothesis the political curse of oil resources); But with increase the fiscal decentralization index and entering the second regime, this positive effect decreases. Also, in the second regime, where fiscal decentralization is above its threshold, the effect of institutional quality indicators and fiscal decentralization in reducing the internal conflict risk is strengthened and the effect of regional inequality in increasing the internal conflict risk is weakened. These results show the important role of fiscal decentralization in reducing the internal conflict risk in the oil country of Iran.