No Representation without Taxation? Rents, Development, and Democracy

Abstract

Natural resource windfalls would seem to be a boon for poor countries. They reduce burden of taxation, create a middle class, and pay for social services. In view of most scholars, however, natural resource bounties are more a curse than a bless ing. Studies of rentier states argue that democracy is unlikely or even impossible without taxation, which had a crucial role in emergence of representation and democracy in European history. Skeptics, however, argue that negative effects are exaggerated and that lack of democracy in Middle East and elsewhere can be traced to other factors. This debate is important because many natural resource exporters are found in developing world. And theory speaks directly to a pressing issue: why is Middle East so resistant to democratization. While effects of natural resource wealth on democracy has been subject of much discussion, only recently has Michael Ross, in a pathbreaking and long over due contribution, tested thesis using a large-n, cross-regional dataset. Ross finds that the oil-impedes-democracy claim is both valid and statistically robust, ... oil does hurt This conclusion helps to vindicate rentier state theory.1 This article revisits this issue and comes to a more ambivalent conclusion. The results differ, first, because a new dataset that directly measures rentierism is used. Second, different methods are used to analyze data. Third, a different tack is taken in dealing with a phenomenon little discussed in studies of natural resources and democracy: in richer rentier states, rents create a larger middle class, pay for schoolteachers, increase per capita GDP, and drive up other measures of develop ment. As Lipset observed, development is correlated with democracy. But it is far from clear that rent-induced development has a positive effect on democracy, what magnitude it might be, and to what degree it is counterbalanced by negative con sequences of rentierism. The issue has received scant attention in studies of ren tier state (though it is engaged in Ross's article and in a study of Congo by John Clark).2 The issue is important not only in analysis of causal mechanisms under lying rentier state theory, but also in a multivariate test of theory, where dif ferent ways of dealing with this issue have an important impact on results.