The value added tax paradox in resource-dependent economies

by Rabah Arezki (CNRS, CERDI), Frederick Van Der Ploeg (University of Oxford), Grégoire Rota-Graziosi (Université Clermont Auvergne), Dao Le-Van  (Vietnam National University)

30 June 2025

The introduction of value added taxes has been widely perceived as successful, boosting government revenue and stimulating industrialisation. This contrasts with the empirical finding that, in countries that are heavily dependent on exports of natural resources, the introduction of VAT has led on average to lower tax revenues and did not stimulate industrialisation. The findings suggest a novel channel for the resource curse hinging on the interaction between economic structure and the design of tax systems.

Since its initial implementation in France in 1954, more than 175 countries have adopted a value added tax (VAT) or a comparable goods and services tax (GST) as of January 2025 (see Figure 1). This widespread diffusion reflects the effective role of VAT as cornerstone of modern tax policy, the principal instrument for revenue mobilisation in both advanced and developing economies. VAT is a prominent tool, which relies on its destination principle 1   and complements the tax transition resulting from trade liberalisation. 

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