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Do oil windfalls improve living standards?: evidence from Brazil

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  • 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, surveybased 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.

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File URL: http://eprints.lse.ac.uk/28691/
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Bibliographic Info

Paper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 28691.

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Length: 62 pages
Date of creation: 2009
Date of revision:
Handle: RePEc:ehl:lserod:28691

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Keywords: Brazil; corruption; Dutch disease; fiscal windfalls; natural resources and oil;

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