Revenue Distribution and Local Impact


5. Sharing revenue between layers of government

So far, government has featured in this topic overview as a single layer. In practice, government is implemented at different levels, such as the national, provincial and the municipal level.

Some, but not all, of the resource revenue should be transferred to lower levels of government.

This is based on the observation that the classic case for fiscal federalism is that local (elected) governments are better informed about local needs and ways to spend revenue effectively. In addition, revenue transfers to local governments of producing regions have the potential to generate more public support for mining, for example by compensating for environmental damage.

Not all revenue should be transferred, because public goods that transcend regional boundaries, such as major roads, should be implemented by higher levels of government, and too much local freedom in spending may result in inefficient policy competition between regions and conflict over what is considered equitable. A prerequisite is that local governments have the capacity to administer the rents and have sufficient local absorptive capacity to facilitate effective public investment. Moreover, a good system of auditing and control should be present.

These facts should be considered when governments design revenue sharing regimes. As of 2016, the following countries have resource revenue sharing arrangements between layers of government: