Power fragmentation and the resource curse

We first formalize tax policy as the result of interministerial competition where the Minister of Finance (‘Guardian’) and the Minister of Mines (’Spender’) have distinct objective functions, whereby the former attempts to stop the latter from extending tax incentives to attract investment in the sector. 

Second, we empirically document that the relative proximity (based on places of birth or co-ethnicity) of the Minister of Mines to the Chief Executive significantly increases revenue forgone from tax expenditures—and reduces the collection of overall tax revenues. 

The results indicate a novel channel for the resource curse, hinging on executive power fragmentation—rather than changes in relative prices as in the standard Dutch disease model.
Working Paper