Economics and Finance Seminar: Radek Stefanski (University of St Andrews)
21 May 2026, 12:00-13:15
Fiscal Fragmentation and the Evolution of Global Misallocation
Resource misallocation is central to development, yet distortions are typically unobserved. We measure and characterise the evolution of a major source of global misallocation using more than a century of field-level data on production, inputs, and tax payments in a single sector — the global oil and gas industry. Distortions are substantial: the world’s current output could be produced with far fewer real resources if inputs were allocated to equalise pre-tax marginal products across fields. Because our data span more than a century, we directly observe the emergence of this misallocation. We find that dispersion in wedges across countries has risen sharply since 1970, driven by the divergence of sovereign fiscal regimes, while dispersion within firms has remained flat. We call this pattern fiscal fragmentation. Embedding the measured wedges in a model of entry and production, we quantify its aggregate cost: fiscal fragmentation accounts for around two-thirds of the sector’s total allocative inefficiency, and operates almost entirely on the intensive margin.
Room A406
