Social and Behavioral Sciences Commons^™

Rents from natural resources can alter the relationship between central and local governments by providing a new source of government financing. We develop a model to explore the relationship between fiscal decentralization and resource abundance. Our model indicates that natural resource rents can detach central government expenditures from the tax base so that the central government can spend more to persuade a fractious periphery to remain under central government control. Thus, other things equal, higher natural resource rents can result in less decentralized government expenditures. We empirically explore the relationship between fiscal decentralization and natural resources rents using a panel …