Assessing the Impact of Resource Rents, Fragile Tax Structures, and Poor Institutional Quality on Post-2003 Iraq’s Social Spending

Abstract

This paper examines the role of oil tax and rent structure and institutional quality in determining social expenditures in Iraq from 2003 to 2021 . Utilizing official data from the Central Bank of Iraq and the Ministry of Finance and the World Bank’s World Governance Index (WGI), we analysed the time series data for 19 observations. The methodology combines descriptive statistics, correlation analysis and ordinary least squares (OLS) regression to test whether tax revenues (total tax, personal income tax, property tax) and institutional factors (governance effectiveness, rule of law and control of corruption) explain social spending as a share of GDP. The results demonstrate that oil rents constitute the predominant component of the budget (averaging 91.2%), whereas tax variables and institutional predictors are statistically insignificant (p > 0.10 in OLS). This phenomenon illustrates the rentier state mechanism, wherein resource revenues replace taxation, thereby diminishing fiscal accountability. This neglect highlights the "resource curse," which drives changes in social spending. Therefore, a policy of diversification of revenue streams through tax reforms and enhanced public administration can be implemented to improve allocation efficiency. This paper adds to the body of literature on rentier states by providing much information about how capital flows in resource-dependent economies after conflict.