EI Sourcebook | 8.9 Revenue Allocation

8.9 Revenue Allocation

Resource revenue sharing between national or central governments and sub-national governments is increasingly common. It may be established by the constitution or by law. The specifics of sharing arrangements and their scale are driven by a number of economic, social, and political considerations. These may include:

the generally superior institutional capacity of the national government;
the ability of the national government to offset instability in resource revenues based on their larger budgets, more sources of non-resource income, greater access to credit markets, and the power to engage in monetary policy;
the local costs of providing public services and infrastructure, and the local social and environmental costs imposed by exploitation of the petroleum or mineral resource;
the national government’s ability to make state-wide decisions on revenue use based on assessments of economic efficiency and vertical and horizontal equity, offset in part by local government insistence on acquiring a major share of their ‘patrimony;’
the prospect of enhanced accountability, expenditure program design and implementation through sub-national assignment of revenues; and
issues of trust between local and national governments related to both distribution and expenditure of revenues.

Balancing these several considerations in practice is very difficult and certainly complicates the task of integrated and comprehensive resource revenue management. It emphasizes the value of institutional capacity building and technical assistance in public fiscal and expenditure management, at all levels of government, and the importance of fostering effective dialogue and coordination.

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