Energy wealth and tax reform in Russia and Kazakhstan

Resource-rich states throughout the developing world are prone to rent-seeking, excessive borrowing, wasteful spending, and unbalanced growth as well as states with weak institutions and authoritarian regimes. Are the five energy-rich Soviet successor states necessarily doomed to repeat this experience, often referred to as the “resource curse”? This paper advances and tests the hypothesis that Russia and Kazakhstan are more likely to avoid the “resource curse” than Uzbekistan, Turkmenistan, and Azerbaijan because they privatized their energy sectors. Specifically, we find that privatization offers a potential path out of the “resource curse” when it involves a transfer of ownership to domestic actors. Although Kazakhstan initially appeared to be developing a viable tax regime in response to foreign investors, over the long term Kazakhstan’s tax regime has become increasingly volatile and dependent upon these foreign investors. In contrast, domestic oil companies are helping to foster the development of an increasingly viable tax regime in Russia.