IMF Blog has this interesting post on how Minister of energy calls up MoF over discovery of some natural resource.
MoF who understands a bit of economics is not too thrilled given the experiences of countries with such resources. So what does he/she do? One idea is to distribute the revenues to people and then clawed back via taxation:
The Minister remembers reading a paper by Sala-i-Martin and Subramanian that argues citizens of an oil-rich country such as Nigeria—where institutions are weak—would be better off if all oil revenues were directly distributed to the citizens themselves. The authors’ main argument is that mechanisms of direct distribution circumvent inefficient or corrupt budget institutions and foster public demand for government accountability. If resource revenues are distributed to the public and clawed back through taxation, the argument goes, the public will demand accountability for the use of the resources.
MoF then floats a study to figure the pros and cons of direct distribution:
As a first step, the advisor looks at how other countries have responded in similar circumstances. To his surprise, he finds only one instance in which resource revenues are distributed directly, that is, in Alaska. However, the Alaskan approach is underpinned by strong budget institutions and official oversight, and the amount distributed is relatively small—only 3 to 6 percent of per capita income—and the direct distribution is made out of income earned from saved resource revenues.
To be thorough, the advisor also looks at the experiences of countries where governments provide cash or in-kind transfers to their populations—including conditional cash transfers, subsidies, and income support programs. He finds that these transfers have proven effective in reducing inequality, but that larger transfers to wealthier recipients might have the unintended effect of encouraging withdrawal from the labor force. He also learns that income support programs have tended to narrow their coverage in order to address the perception that they discourage recipients to work. He studies how entrenched energy subsidies are—despite being inefficient, inequitable, and bad for growth—as citizens see them as a way to reap benefits from resource abundance. Finally, he learns that the use of resource revenues outside the budget process can also fall prey to rent-seeking.