8.3 Spending Channels
- 5.1 Policy Context
- 5.2 Sector Legislation: Design
- 5.3 Sector Legislation: Content
- 5.4 Contracts and Licenses
- 5.5 Local Content
- 5.6 The Award of Contracts and Licenses
- 5.7 Regulations
- 5.8 Contract Negotiations and Dispute Settlement
- 6.1 Institutional Structures
- 6.2 An Overview of the Key Governmental Bodies and Agencies
- 6.3 Focus on a Key Player: National Resource Companies
- 6.4 Key Institutional Issues
- 6.5 Efforts at Institutional Reform
- 7.1 Fiscal Objectives
- 7.2 Fiscal Instruments
- 7.3 Special Fiscal Topics and Provisions
- 7.4 Fiscal Packages
- 7.5 Fiscal Administration
- 8.1 Consumption
- 8.2 Investment
- 8.3 Spending Channels
- 8.4 Volatility Concerns
- 8.5 Absorptive Capacity
- 8.6 Debt Reduction
- 8.7 Resource Funds
- 8.8 Fiscal Discipline and Sustainability
- 8.9 Revenue Allocation
- 9.1 The Approach in the Source Book
- 9.2 What are the Challenges?
- 9.3 Investment
- 9.4 Expenditure Quality Control and Oversight
- 9.5 Objectives
- 9.6 Challenges and Special Issues
- 9.7 General Principles for Response
- 9.8 Policy Instruments
- 9.9 Management and Oversight
- 9.10 Stakeholder Consultation and Participation
- 9.11 Conclusions
Spending of resource revenues can flow through a variety of channels. They can flow through public expenditure on infrastructure investments, through social benefit expenditures such as health and education, or through direct distribution to the general population through the tax system and or ‘citizen dividends.’[4]
Public Spending. Arguments in favor of direct public spending include: retention of central control over both the macroeconomic trend and microeconomic detail of spending; the chronic undersupply of physical and social infrastructure supported by public expenditure and the high rates of economic and social return on such investments; the potentially significant catalytic impact of public expenditure on private sector investment; and job creation and employment.
The main argument against direct public spending of resource revenues has to do with its ability to handle any rapid increase in expenditure in an effective manner (see Section 7.4 above).
Direct Distribution. Reduced taxes are the most common route for direct distribution of resource revenues to the general population, although citizen dividends are increasingly discussed. Arguments advanced in support of direct distribution include: the revenues belong to the citizens of the state and should go directly to them, especially where there is a risk of their being wasted or misappropriated by the authorities in states with poor governance; direct transfers can always be taxed back by the government, with the taxing relationship forming the basis for long-term improvements in governance and accountability; and the private sector is better than government in identifying spending and investment priorities, and in ensuring the success.
Counter-arguments are several and comprise: current beneficiaries of the distribution are likely to give to little weight to the future and therefore invest too little; governments are better informed on resource revenue flows, output levels, and price volatility than the general population; and governments are better placed than individuals to absorb revenue fluctuations.
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