Electoral Politics, Fiscal Policy, and the Resource Curse

While some governments use natural resources for immediate political gain, others create transparent institutions that promote sustainable development. What explains this variation? Using novel data for Latin America between 1990 and 2019, I show that executive incumbents are more likely to restrict their discretion over natural resource revenue when public approval is high and legislative opposition is strong. When rulers are safe in their seats, they can use public funds for long-run developmental strategies, rather than short-term political survival. When there is a strong legislative opposition, rulers can signal a desire to compromise by relinquishing control over resource revenue. These findings, illustrated by the case of Mexico, suggest that a combination of high support and strong opposition provides space to create long-term fiscal policy frameworks while generating short-term incentives to do so.