This view about the importance of revenue mobilization in countries with low levels of provision of public goods and social and infrastructure gaps is, indeed, in line with the evidence presented in Figures 3 and 4 In a similar vein, and mainly due to the need to reduce the fiscal deficit, Costa Rica’s fiscal authorities sent to Congress in 2016 a draft law to increase the VAT rate by one percentage point in 2016 (i.e., from 13 to 14 percent) and another one in 2017 (from 14 to 15 percent).

# 3 Policy implications II: On revenue mobilization in commoditydependent countries

Since the fall in commodity prices in 2014, most commodity-rich countries (especially those whose fiscal revenue structure depends “excessively”upon commodity revenues) have been facing a growing fiscal challenge as the price fall has increasingly been perceived as more permanent than temporary in nature. Indeed, Figure 5 shows, for a sample of 55 countries for which commodity revenue data were available, that the share of commodity revenues (as percentage of total revenues) tracks very well that of commodity prices.<sup>3</sup> Since commodity prices are expected to remain low in the years to come, so will commodity revenues. This, in turn, shows the serious challenge faced by commodity-rich countries and particularly by those with high commodity revenue dependency.

Figure 6 shows the association between the economy’s dependency on commodities (proxied by the commodity GDP as a percentage of total GDP) and the commodity revenue dependency (proxied by commodity revenues as a percentage of total revenues). Not surprisingly, the fitted line shows that the higher is commodity GDP, the larger is the share of commodity revenues in total revenues.<sup>4</sup> For example, in a country like Kuwait, where oil production represents about 60 percent of total GDP, oil revenues constitute about 90 percent of total revenues. In contrast, in the Philippines, oil production represents less than 1 percent in both GDP and fiscal revenues. One can view countries above the fitted line as countries whose fiscal revenue structure depends “excessively”upon commodity revenues relative to a typical country with the same level of economic dependency. The opposite is true for countries below the fitted line. For example, while in Papua New Guinea commodity production represents about 32 percent of GDP and revenue dependency is about 34 percent, in Nigeria commodity

> 3 Commodity revenues include income from mining and/or hydrocarbons. The list of countries and commodity coverage comprises the following. For both mining and/or hydrocarbons commodities: Australia, Bolivia, Brazil, Canada, Colombia, DRC, Indonesia, Mauritania, Papua New Guinea, and Vietnam. For hydrocarbons commodities: Algeria, Angola, Azerbaijan, Bahrain, Brunei, Cameroon, Chad, Congo Republic, Ecuador, Equatorial Guinea, Iran, Iraq, Ivory Coast, Kazakhstan, Kuwait, Libya, Malaysia, Mexico, Myanmar, Namibia, Niger, Nigeria, Norway, Oman, Philippines, Qatar, Russia, Saudi Arabia, Sudan, Syria, Timor-Leste, Trinidad and Tobago, United Arab Emirates, United Kingdom, Uzbekistan, Venezuela, and Yemen. For mining commodities: Botswana, Chile, Ghana, Guinea, Guyana, Kyrgyz Republic, Lesotho, Mongolia, Peru, Sierra Leone, Tanzania, and Zambia.

> 4 Unlike Figure 3, Figure 6 suggests that a non-linear estimation would not increase the predictive power relative to the linear estimation.

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