Jul 8, 2014

IMF note supports a partial citizen-ownership democracy

Direct Distribution of Resource Revenues: Worth Considering? 
Prepared by Sanjeev Gupta, Alex Segura-Ubiergo, and Enrique Flores, June 2014

The above discussion note from IMF examines direct distribution of resources revenues, i.e. a citizen dividend from a country's resources. Let's go to the conclusion of the report.
"Decisions on the appropriate fiscal framework for resource-wealth management should precede any discussion of direct redistribution. Policymakers first need to ensure that there is an  appropriate institutional setting so that fiscal policy supports macroeconomic stability and development objectives. In this regard, decisions on how much to save and invest or how to smooth out revenue volatility and deal with exhaustibility issues should precede any discussion of direct distribution of resource revenues to the population.

In our view, the extreme case of directly distributing all resource revenues to the population is not appropriate. As noted earlier, there is no guarantee that the mechanism of redistribution would be unaffected by large-scale rent-seeking. In addition, there is the issue that the state would be left with insufficient resources to carry out its core activities, such as providing basic public goods. DDMs would hardly be feasible at the political level as incumbent leadership, especially in countries that already have the symptoms of weak governance that DDMs are supposed to fix, would have no incentive to implement them. Finally, the labor market consequences of large transfers cannot be overlooked.

However, we see merit in more modest DDM schemes that either try to replicate the Alaskan model or seek to develop (or expand) the system of cash transfers to the population. The Alaskan model is innovative and has generated strong support from the population. Starting small is necessary given uncertainties about the administrative capacity of a typical resource-rich country and logistical concerns about how the system would work in practice. The limited size of the program would help avoid unanticipated implementation problems.
(DDM: Direct Distribution Mechanisms )
While the report rejects a full 100% citizen dividend from a country's resources, it supports a "modest" citizen dividend following the Alaskan model. The Alaska Permanent Fund receives 25% of the state's oil taxes, and distributes the investment income every year as a citizen dividend to all Alaskans.

A sudden 100% return of citizen dividend will most likely lead to the collapse of many government budgets, since they have been relying on this confiscated money for years. But that could be a middle or long term goal. For example, Alaska's government is run purely based on confiscated citizen dividend, without any income tax. A full citizen dividend will mean a gradual introduction of progressive income tax, with the rich rightly bearing more burden for the state's operation. Alaska's state burden now falls evenly on every Alaskan, regardless of his/her income or wealth.

Even Alaska can aim to return more and more citizen dividend back to its people.

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