Fiscal institutions and the additionality of extraordinary lithium rents at the subnational level: Evidence from Antofagasta, Chile

Abstract Motivation In resource‐rich regions, subnational governments often struggle to translate extraordinary revenues into effective public investment and local development outcomes under conditions of partial fiscal decentralization. While resource windfalls can expand local fiscal space, their developmental impact critically depends on the institutional arrangements that govern the relations between central and subnational governments. Since 2018, Chile has received substantial subnational revenues related to lithium extraction in the Salar de Atacama, allowing an examination of how institutional design shapes fiscal additionality. Purpose This article examines how multilevel institutional arrangements under partial decentralization shape the fiscal additionality of lithium‐related extraordinary revenues at the subnational level. Methods The study adopts an explaining‐outcome process tracing approach, combining analysis of government and policy documents with semi‐structured interviews with key actors at central, regional, and municipal levels. This design reconstructs sequential institutional decisions shaping the authorization and execution of extraordinary revenues between 2018 and 2025. Findings The findings identify three causal mechanisms linking multilevel institutions to revenue additionality. First, under partial decentralization, subnational extraordinary resource revenues are incorporated into a centralized budgetary framework, generating institutional uncertainty regarding their fiscal treatment in the absence of explicit non‐compensation rules. This uncertainty induces precautionary behaviour among subnational governments, delaying planning and execution despite resource availability. Second, heterogeneity across governance scales in perceptions of subnational capacity to manage public investment conditions central authorization processes, reinforcing cautious oversight and prolonging approval timelines. Third, when contractual protocols governing extraordinary revenues are adjusted to local priorities and operational capacities, subnational governments are better able to translate these resources into additional public investment. Policy implications The governance of volatile revenues linked to critical minerals benefits from instruments that: (i) prevent compensatory reductions in regular intergovernmental transfers; (ii) enable multiannual programming and, where appropriate, intertemporal accumulation; and (iii) link extraordinary revenues to strategic investment portfolios consistent with territorial planning frameworks.