{
  "id": 16596956,
  "title": "Domestic resource trap: When raising revenue shrinks the economy",
  "url": "https://urgent.news/2026/10/26/domestic-resource-trap-when-raising-revenue-shrinks-the-economy",
  "topic": "finance",
  "section": "Finance & Markets",
  "published": "2026-10-26T11:41:43.000Z",
  "source": {
    "name": "Business Recorder",
    "slug": "business-recorder",
    "url": "https://www.brecorder.com/news/40445991/domestic-resource-trap-when-raising-revenue-shrinks-the-economy"
  },
  "original_language": "en",
  "account": "For decades, the notion that a government must first find the money before it can invest, build infrastructure, or expand public services has been a prevalent economic policy across developing nations. This idea underpins Domestic Resource Mobilisation (DRM), which encourages governments to raise tax-to-GDP ratios, broaden tax bases, and improve enforcement. While it is a valid concern that developing countries require functional tax systems, another aspect often overlooked is the potential adverse effects of how a government raises revenue on the very economy from which those revenues must eventually come.\n\nAn economy encompasses a complex system of production, investment, employment, consumption, and credit. Collecting revenue from different components of this system yields varied economic consequences. A rupee obtained from speculative land gains differs economically from one derived from an essential production input. Similarly, taxing cigarettes does not equate to a levy embedded in the fuel that transports vegetables from farms to markets. However, these revenues appear uniformly on the government's financial statement, disregarding their distinct economic implications.\n\nAn economist named Nkosi challenges the traditional DRM paradigm in a recent IDEAs working paper. Drawing upon endogenous-money, post-Keynesian, and structuralist perspectives, he proposes a shift in focus from Domestic Resource Mobilisation (DRM) to Domestic Resource Creation (DRC). The core concept suggests that finance should not be viewed as a fixed pool of scarce savings to be mobilized before development can take place. Applied to fiscal policy, this insight transforms the question. Under a narrow resource-mobilisation approach, policymakers inquire about the immediate revenue generation potential of a measure. In contrast, a resource-creation approach asks about the impact of the measure on production, investment, employment, and the following revenue base.\n\nThis second question is crucial since fiscal instruments do not merely accumulate money. They alter prices, incentives, and economic behavior. When inputs become the revenue base, Pakistan's petroleum levy exemplifies the dilemma. In FY2025-26, the federal government collected approximately Rs1.567 trillion through the petroleum levy, surpassing its budget target of Rs1.468 trillion. From a revenue-centric viewpoint, this collection performance is commendable. However, petroleum is not merely a consumer item; it is an integral part of the costs associated with transporting workers and goods, operating farms, distributing agricultural produce, and delivering manufactured products. This does not imply that petroleum should never be subject to a levy. Pricing the environmental costs of fossil fuel consumption can be a legitimate policy objective. Nevertheless, the timing and context matter. When external supply disruptions already lead to significant energy price increases, relying heavily on the same essential input as a convenient source of fiscal revenue raises a different question: are we merely absorbing an external shock or exacerbating its effects within the domestic economy? A fundamental principle emerges: fiscal policy should differentiate between what society aims to discourage and what the economy requires to expand.\n\nFor instance, taxing cigarettes addresses health costs, serving a clear public-health rationale. The objective includes behavioral aspects, such as discouraging harmful consumption through taxation. Taxing speculative land gains also aims to deter rent-seeking and unproductive asset accumulation. However, raising revenue through essential production inputs is different. Such measures can inadvertently enter costs across domestic value chains. On the government's ledger, a rupee collected from cigarettes and a rupee collected through a petroleum levy both contribute to increased revenue. Yet, the source of that revenue matters in the real economy.",
  "summary": "For decades, a remarkably resilient idea has shaped economic policy across the developing world: before a government can invest, build infrastructure or expand public services, it must first “find the money”. This logic lies at the heart of Domestic Resource Mobilisation (DRM). Governments are urged to raise tax-to-GDP ratios, broaden tax bases and improve enforcement so that more resources can…",
  "key_points": [],
  "editors_take": null,
  "illustration": null,
  "coverage": {
    "outlets": 1,
    "also_reported_by": []
  },
  "ai_generated": true,
  "disclaimer": "Summaries, key points and the editor’s take are written by software from other outlets’ reporting and may contain errors — always check the linked original."
}