Impact of Oil Revenue Spending on Income Distribution: the Case of Azerbaijan

Abstract

This paper examines the impact of the oil factor on income distribution in a resource-rich country, Azerbaijan. Since the early 2000s, the rapid increase in oil revenuesh as been used for the economic and social development in the country. The increased revenues from oil sales has led to a sharp increase in the share of the top 10% of the population in total income, the stabilization of the share of the lowest 10%, and a significant decline in the share of the middle layer. The widespread use of oil revenues has played a leading role in the formation of new structural features in social stratification. In addition to the sharp decline in extreme poverty in the country, the layer with a higher income has emerged. At the same time, increasing oil revenues has not given a strong impetus to the formation of a prosperous middle layer. This paper also demonstrates that the solution of the income inequality problem is related to improving the quality of institutions, enhancement strategies for the use of oil revenues in the short and long terms, as well as ensuring the consistent implementation of an active diversification policy.

JEL : Q33, P24, P36, D63, D64