The interplay between resource wealth and tax revenue:implications for fiscal policy and institutional development in the Kurdistan region

This chapter comprehensively reviews the empirical and theoretical literature on the relationship between natural resource revenues and non-resource tax performance. It systematically examines how reliance on natural resources influences fiscal outcomes, highlighting the adverse effects on non-resource tax revenues in the context of the “resource curse.” This review explores the fiscal substitution effect, where high-resource incomes lead governments to deprioritize other tax efforts. It discusses how resource abundance fosters a political environment undermining tax policy efficiency and governmental accountability. The role of institutional quality in mediating these relationships is critically analyzed, demonstrating that strong governance can counterbalance the negative impacts of resource dependence by enhancing tax revenue mobilization and supporting sustainable fiscal practices. The chapter draws on diverse case studies and statistical evidence to outline the economic and political dynamics at play, offering insights into how volatility in resource incomes can destabilize fiscal systems. Finally, it provides policy recommendations for resource-rich nations including the Kurdistan Region of Iraq (KRI). It suggests that enhancing institutional frameworks and implementing comprehensive tax reforms are essential for stabilizing economic growth and fostering more significant social equity.