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Extractive industries and local development: a comparative study on the influence of tax and redistribution politics in three Andean countries

Final Report Summary - EID (Extractive industries and local development: a comparative study on the influence of tax and redistribution politics in three Andean countries)

EID is an international research project on the influence of institutional settings on the capacity of Extractive Industries (EIs) to promote socioeconomic development. Principal investigator, Dr. Javier Arellano-Yanguas is housed at the Center for Applied Ethics at the University of Deusto. The goal of this project is to enhance knowledge on the effects of the institutional context and the way in which taxation and distribution policy regimens for mining and hydrocarbons are crafted on the extent, nature, and distribution of development opportunities in the territories where extraction occurs. The project also aims to link this knowledge to public debates on alternatives to current systems of redistribution that might enhance the development opportunities EIs create.

These objectives are addressed through a comparison of taxation and distribution policies for hard rock mining and hydrocarbons and their developmental outcomes in Bolivia, Colombia, and Peru. The research addresses three questions:

1. How do distinct taxation and revenue distribution regimes emerge and consolidate in each country?
2. How does the design of the EI taxation regime influence the capacity of the state to promote pro-poor policies?
3. How do these policies influence the development of opportunities in the territories where extraction occurs?

The study addresses the hypothesis that it is not only the content of the policies that matters but the process through which these policies are designed.
In order to answer these questions, the project has undertaken the following activities:
- Constitution of the research team and singing of collaboration agreements with partners in Bolivia, Colombia, and Peru
- Extensive field research in the three countries at two levels:
a) At the national level, we interviewed parliamentarians, bureaucrats, members of the cabinet, business people, and social leaders who were involved, to varying degrees, in the reform of taxation and redistribution policies in the mining and hydrocarbon sectors.
b) At the regional/local level in two regions of each country where extraction takes place, we sought to understand the uneven development opportunities that the extractive sector catalyzes.
- Compilation of three panel datasets with the socioeconomic indicators available for all regions/departments of each of the three countries
- Elaboration of reports with information and results on each of the three countries
- Workshops in the three countries to present and discuss preliminary analysis of the data with a wide range of interested stakeholders
- Presentation of the main findings in ten international academic conferences in Spain, United Kingdom, Germany, United States of America, Bolivia, and Colombia.

The main findings of the research can be summarized as follows:
- Taxation policies in the extractive sector depend on the degree and type of connection of the economic elite to the sector. The elite factor accounts for differences between countries and between sub-sectors (mining and hydrocarbons) within each country. In the three countries, governments extract proportionally more fiscal rents from hydrocarbons than from mining.
- Policies to redistribute fiscal revenues from EIs depend on two political dimensions: the degree of bargaining power of subnational actors and the link between national and subnational political actors.
- The concentration of significant fiscal transfers to the jurisdictions where extraction takes place has not proven to improve the living conditions of local populations in those regions. In fact, that strategy tends to increase inequalities. A more equal distribution across producing and non-producing jurisdictions seems to yield better results in terms of the use of those resources.
- Mining and oil companies play an important political role in the territories where they operate. The weak presence of the state in those territories and the subsequent tendency of corporations to assume a central role in the promotion of local development have not yielded positive results.

These findings have been published in working papers, articles in peer-reviewed journals and chapters in edited books. Moreover, the results of the project have been used for two practical purposes: (i) the preparation of a report for the Peruvian Government on an eventual reform of redistributive policies of Extractive Industries Revenues across subnational jurisdictions to improve levels of inequality; (ii) participation in the Practical Action’s Evidence and Lessons From Latin America (ELLA) project, advising the joint effort of social organizations from Ecuador and Uganda working on the implementation of local content policies in the oil sector.
The development of this research project has strengthened the academic career of the Marie Curie Fellow (P.I. Javier Arellano-Yanguas). In September 2014, he obtained an open-ended full-time research contract with the University of Deusto. Moreover, he was appointed Director of the Centre for Applied Ethics and Principal Investigator of its research team.