One of the main obstacles to the sustainability of governments’ revenues in developing countries is the dependency on the rent generated by nonrenewable natural resources. Resource-rich countries have weak incentives to design and maintain efficient tax systems. I consider a theoretical model where the government of a resource-rich country, has to decide whether to undertake a costly investment in its ability to collect taxes and I incorporate progressive income tax. The model predicts that a resource-rich country has more incentives to invest in its ability to collect tax revenues, the more progressiveis the tax schedule because expected returns to that investment may be higher. I test this prediction, named the conditional revenue curse hypothesis, in a sample of 57 developing countries over the period 1981-2005. In order to deal with the endogeneity of natural resources, I construct a country-specific natural resource price index and use its growth rate as an instrument for natural resource rent windfalls. I find that an increase in resource rent windfalls of $1 reduces domestic tax revenues by $0.25. Moreover, at a progressivity level of 0.05 (a tax schedule such that an increase in gross income by 1% yields an increase in the average tax rate by 0.0005% point), an increase in resource rent windfalls of $1 reduces domestic tax revenues by only $0.14. Following a resource windfall, countries with a high level of progressivity collect more tax revenues than their
counterparts with a low level of progressivity.