Fiscal Dependence, Institutional Quality, and Environmental Policy: Rethinking the Resource Curse through the Fiscal Structural Resource Curse in Timor-Leste
Year: 2026
Type: preprint
Abstract: Dependence on natural resources not only causes economic challenges but can also influence fiscal systems that affect governmental capacity, institutional quality, and environmental governance. However, the resource curse literature still positions resource availability and political behavior as the key explanation, while the importance of fiscal dependency as a structural factor has not been empirically examined. This paper explores the influence of Fiscal Dependence on Oil on Institutional-Environmental Governance Outcomes in Timor-Leste and examines whether Political Short-Termism plays a role as an intervening mechanism. The study used a quantitative method with Partial Least Squares–Structural Equation Modelling (PLS-SEM) based on annual secondary data for Timor-Leste over the period 2010–2025 (n = 16). Fiscal Dependence on Oil is quantified by dependence on oil income and the Petroleum Fund, while governance results are represented by Government Effectiveness, Regulatory Quality, Control of Corruption, Environmental Budget Ratio, and Environmental Integration Score. The results showed that Fiscal Dependence on Oil had a negative and substantial effect on Institutional-Environmental Governance Outcomes (β = −0.710; p < 0.001), with a clear power of the model of R² = 0.807. Fiscal Dependence on Oil is likewise highly associated with Political Short-Termism (β = −0.664; p < 0.001), although the reverse is the hypothesized direction. In contrast, Political Short-Termism had no significant effect on governance outcomes (β = 0.253; p = 0.236), and its indirect effect was equally minor (β = −0.168; p = 0.326). These findings show that the erosion of governance in Timor-Leste is more fundamental than being caused by short-term political factors. This research expands the notion of Fiscal Structural Resource Curse (FSRC) by identifying fiscal structure as a key mechanism that relates resource dependency with state capability and governance. The result is that reforms need to be geared toward fiscal diversification, enhancing the management of the Petroleum Fund, and incorporating the environmental agenda in public planning and budgeting.
Source: Research Square
Institution: Warmadewa University
Language: English
Domain: Social Sciences
Open Access status: green
Funder: Universitas Warmadewa
Award: G2535449328
OpenAlex ID: W7204458624