Working Paper: NBER ID: w15550
Authors: Francesco Caselli; Guy Michaels
Abstract: We use variation in oil output among Brazilian municipalities to investigate the effects of resource windfalls. We find muted effects of oil through market channels: offshore oil has no effect on municipal non-oil GDP or its composition, while onshore oil has only modest effects on non-oil GDP composition. However, oil abundance causes municipal revenues and reported spending on a range of budgetary items to increase, mainly as a result of royalties paid by Petrobras. Nevertheless, survey-based measures of social transfers, public good provision, infrastructure, and household income increase less (if at all) than one might expect given the increase in reported spending. To explain why oil windfalls contribute little to local living standards, we use data from the Brazilian media and federal police to document that very large oil output increases alleged instances of illegal activities associated with mayors.
Keywords: oil windfalls; living standards; Brazil; municipalities; fiscal revenues
JEL Codes: E02; E62; H11; H40; H71; H72; H75; H76; O11; O13; Q32; Q33
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Oil production (L71) | Municipal non-oil GDP (H79) |
| Oil production (L71) | Municipal revenues (H70) |
| Municipal revenues (H70) | Reported spending on public goods and services (H59) |
| Reported spending on public goods and services (H59) | Welfare-relevant outcomes (I38) |
| Oil production (L71) | Household income and measures of social transfers (D31) |
| High oil output (L71) | Instances of corruption and illegal activities (K42) |