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Venezuela is the textbook case of a resource-rich country. Between 1950 and 2008, oil generated over $1 trillion of income for the state. The country’s proven reserves, at 7 million barrels per Venezuelan, are the largest in the world and will last 270 years at current production rates.
Such natural wealth, though, may not be a good thing. Countries with rich natural resources, especially oil, often suffer from high poverty, frequent conflict, bad governance, and endemic corruption. Governments that can rely on natural resources do not need to tax their citizens. In turn, citizens do not expect or demand public services, clean government, or even basic accountability.
CGD’s Oil-to-Cash initiative is developing a policy option to address the resource curse and help to foster a social contract in resource-rich countries: direct distribution of some or all revenues to citizens in universal, transparent, and regular payments.
In this paper sponsored by senior fellow Alan Gelb, Pedro L. Rodríguez, José R. Morales, and Francisco J. Monaldi ask whether the direct and automatic distribution of oil rents to citizens is a viable option in Venezuela. Government accountability there has weakened as oil revenues have been diverted more and more to toward discretionary spending channels. Would direct distribution improve accountability? What do citizens think about the approach? The authors confront these questions, focusing on the fiscal contract between citizens and their government.