role of institutional quality, previous studies focused either on one indicator (corruption for Bornhorst, Gupta, and Thornton (2009) and Thomas and Trevino (2013)), or on an aggregate index of the quality of institutions (for Botlhole (2011), the Economic Freedom of the World index, which is a composite of 10 broad factors of economic freedom). In this paper, we assess individually the role of the six Worldwide Governance Indicators since using a composite governance indicator (e.g., Economic Freedom) may be misleading for our purpose, in the sense that the exact institutional weaknesses may not be identified adequately. Our goal is therefore two-fold: (i) to identify institutional variables that could play an important role in reducing the likelihood of occurrence of a non resource tax revenue crowding out, and (ii) to determine the threshold for these institutional variables, above which the likelihood of non resource tax revenue crowding out vanishes. This could help Ugandan authorities understand the level of effort needed to improve the country?s institutional quality in order to avoid a critical symptom of the natural resource curse. Second, our econometric methodology also differs from existing studies, which rely mostly on a linear model. In this paper, we consider a nonlinear probabilistic model to estimate the likelihood of an improvement of non-resource tax performance. This approach is convenient for out-of-sample predictions. With a linear model, the marginal effect on the dependent variable is not country-specific. Instead, a nonlinear model allows the analysis of marginal effects using country-specific characteristics, which is consistent with our goal of determining the threshold level for governance variables that Uganda needs to meet to avoid tax revenue crowding out.

As in previous studies, we find that an increase in hydrocarbon revenue induces a decline in non-resource revenue. Moreover, strengthening the quality of institutions is critical to reducing the risk of this crowding out effect. These results are robust to alternative specifications of both the linear and nonlinear models. In general, regulatory quality, rule of law, government effectiveness and political stability are the most important of the six Worldwide Governance Indicators (WGI)<sup>3</sup> . Our results also suggest that for Uganda, oil exploitation would be less likely to reduce domestic tax performance only if the levels of its governance indicators are at least around 0.5 for political stability, 1 for regulatory quality and 1.25 for government effectiveness. In 2012, those indicators were at -0.89, -0.24 and -0.56 respectively, implying that Uganda’s government would need to take strong actions to improve its quality of institutions to a level that would avoid the resource curse.

The remainder of the paper is organized as follows. Section II describes some stylized facts about hydrocarbon and non-hydrocarbon revenues. Section III presents our empiri-

> 3The WGI are a research data set summarizing the views on the quality of governance provided by a large number of enterprise, citizen and expert survey respondents in industrial and developing countries. These data are gathered from a number of survey institutes, think tanks, non-governmental organizations, international organizations, and private sector firms. The six aggregate indicators are reported in two ways: (1) in their standard normal units, ranging from approximately -2.5 to 2.5 with higher values corresponding to better outcomes, and (2) in percentile rank terms from 0 to 100.

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