IDEAS home Printed from https://ideas.repec.org/a/eee/jrpoli/v64y2019ics0301420719303484.html
   My bibliography  Save this article

Revisiting the link between resource windfalls and subnational crowding out for local mining economies in Chile

Author

Listed:
  • Oyarzo, Mauricio
  • Paredes, Dusan

Abstract

Literature on the resource curse argues that resource windfalls, such as those resulting from a commodity price boom, crowd out several determinants of long-term fiscal income (Papyrakis and Gerlagh, 2006). Although empirical literature tests this theory at an intercountry context, similar attention has not been paid to that of subnational governments. This different type of spatial scope would reveal how low-tier governments strategically behave in regard to resource windfalls and covering local costs. Any strategic behavior will directly impact the local community's well-being due to the role played by subnational governments in providing local public goods. We contribute to this gap in the literature by analyzing how the resource windfalls from mining taxes in Chile crowd out local collected revenue such as a residential and a commercial property tax. Using panel data for 345 Chilean municipalities between 2008 and 2017, we pursue the causal effect derived from a subnational crowding out hypothesis, measured as the cross substitution between an additional monetary unit received from windfalls. We also take advantage of the exogenous allocation rule for the distribution of mining taxes in mining municipalities via the Chilean National Mining Code. Our results are robust and do not reject the hypothesis: mining taxes crowd out property tax collection. Tax laziness is maintained after considering for potential endogeneity and heteroskedasticity imposed by spatial autocorrelation. Our results call for local policies that focus on discouraging undesirable behavior in the collection of local property taxes in mining municipalities.

Suggested Citation

  • Oyarzo, Mauricio & Paredes, Dusan, 2019. "Revisiting the link between resource windfalls and subnational crowding out for local mining economies in Chile," Resources Policy, Elsevier, vol. 64(C).
  • Handle: RePEc:eee:jrpoli:v:64:y:2019:i:c:s0301420719303484
    DOI: 10.1016/j.resourpol.2019.101523
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0301420719303484
    Download Restriction: Full text for ScienceDirect subscribers only

    File URL: https://libkey.io/10.1016/j.resourpol.2019.101523?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Fidel Perez-Sebastian & Ohad Raveh, 2016. "The Natural Resource Curse and Fiscal Decentralization," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 98(1), pages 212-230.
    2. E. Caldeira & Grégoire Rota-Graziosi, 2014. "The Crowding-in Effect of Simple Unconditional Central Grants on Local Own-Source Revenue: The Case of Benin," Post-Print hal-01998449, HAL.
    3. Sam Bucovetsky & Michael Smart, 2006. "The Efficiency Consequences of Local Revenue Equalization: Tax Competition and Tax Distortions," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 8(1), pages 119-144, January.
    4. Jeffrey D. Sachs & Andrew M. Warner, 1995. "Natural Resource Abundance and Economic Growth," NBER Working Papers 5398, National Bureau of Economic Research, Inc.
    5. Masaki, Takaaki, 2018. "The impact of intergovernmental transfers on local revenue generation in Sub-Saharan Africa: Evidence from Tanzania," World Development, Elsevier, vol. 106(C), pages 173-186.
    6. Zhuravskaya, Ekaterina V., 2000. "Incentives to provide local public goods: fiscal federalism, Russian style," Journal of Public Economics, Elsevier, vol. 76(3), pages 337-368, June.
    7. Dahlberg, Matz & Mörk, Eva & Rattsø, Jørn & Ågren, Hanna, 2008. "Using a discontinuous grant rule to identify the effect of grants on local taxes and spending," Journal of Public Economics, Elsevier, vol. 92(12), pages 2320-2335, December.
    8. Fernanda Brollo & Tommaso Nannicini & Roberto Perotti & Guido Tabellini, 2013. "The Political Resource Curse," American Economic Review, American Economic Association, vol. 103(5), pages 1759-1796, August.
    9. Dobra, John & Dobra, Matt, 2013. "State mineral production taxes and mining law reform," Resources Policy, Elsevier, vol. 38(2), pages 162-168.
    10. Sachs, Jeffrey D. & Warner, Andrew M., 1999. "The big push, natural resource booms and growth," Journal of Development Economics, Elsevier, vol. 59(1), pages 43-76, June.
    11. Buettner, Thiess & Wildasin, David E., 2006. "The dynamics of municipal fiscal adjustment," Journal of Public Economics, Elsevier, vol. 90(6-7), pages 1115-1132, August.
    12. Robinson, James A. & Torvik, Ragnar & Verdier, Thierry, 2006. "Political foundations of the resource curse," Journal of Development Economics, Elsevier, vol. 79(2), pages 447-468, April.
    13. Lockwood, Ben, 1999. "Inter-regional insurance," Journal of Public Economics, Elsevier, vol. 72(1), pages 1-37, April.
    14. Robinson, James A. & Torvik, Ragnar & Verdier, Thierry, 2014. "Political foundations of the resource curse: A simplification and a comment," Journal of Development Economics, Elsevier, vol. 106(C), pages 194-198.
    15. James A. Robinson & Thierry Verdier, 2013. "The Political Economy of Clientelism," Scandinavian Journal of Economics, Wiley Blackwell, vol. 115(2), pages 260-291, April.
    16. Ross, Michael L., 2004. "Does Taxation Lead to Representation?," British Journal of Political Science, Cambridge University Press, vol. 34(2), pages 229-249, April.
    17. Emilie Caldeira & Grégoire Rota-Graziosi, 2014. "The Crowding-in Effect of Simple Unconditional Central Grants on Local Own-Source Revenue: The Case of Benin," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 23(3), pages 361-387.
    18. Rodríguez Javiera Bravo, 2013. "The Incentive Effect of Equalization Grants on Tax Collection," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 13(1), pages 173-202, May.
    19. Juan Soto & Dusan Paredes, 2016. "Cities, Wages, And The Urban Hierarchy," Journal of Regional Science, Wiley Blackwell, vol. 56(4), pages 596-614, September.
    20. Aroca, Patricio, 2001. "Impacts and development in local economies based on mining: : the case of the Chilean II region," Resources Policy, Elsevier, vol. 27(2), pages 119-134, June.
    21. Michael Smart, 1998. "Taxation and Deadweight Loss in a System of Intergovernmental Transfers," Canadian Journal of Economics, Canadian Economics Association, vol. 31(1), pages 189-206, February.
    22. Jeffrey M Wooldridge, 2010. "Econometric Analysis of Cross Section and Panel Data," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232588, December.
    23. Timmons, Jeffrey F. & Garfias, Francisco, 2015. "Revealed Corruption, Taxation, and Fiscal Accountability: Evidence from Brazil," World Development, Elsevier, vol. 70(C), pages 13-27.
    24. Frederick Van Der Ploeg & Steven Poelhekke, 2017. "The Impact of Natural Resources: Survey of Recent Quantitative Evidence," Journal of Development Studies, Taylor & Francis Journals, vol. 53(2), pages 205-216, February.
    25. Wildasin, David E., 1984. "The welfare effects of intergovernmental grants in an economy with distortionary local taxes : A simple general equilibrium analysis," Journal of Public Economics, Elsevier, vol. 25(1-2), pages 103-125, November.
    26. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    27. Martín Arias & Miguel Atienza & Jan Cademartori, 2014. "Large mining enterprises and regional development in Chile: between the enclave and cluster," Journal of Economic Geography, Oxford University Press, vol. 14(1), pages 73-95, January.
    28. Fernando M. Aragon, 2013. "Local Spending, Transfers, and Costly Tax Collection," National Tax Journal, National Tax Association;National Tax Journal, vol. 66(2), pages 343-370, June.
    29. Alexander James, 2015. "US State Fiscal Policy and Natural Resources," American Economic Journal: Economic Policy, American Economic Association, vol. 7(3), pages 238-257, August.
    30. Valle de Souza, Simone & Dollery, Brian & Blackwell, Boyd, 2018. "An empirical analysis of mining costs and mining royalties in Queensland local government," Energy Economics, Elsevier, vol. 74(C), pages 656-662.
    31. Aragon, Fernando, 2009. "The flypaper effect revisited," LSE Research Online Documents on Economics 58199, London School of Economics and Political Science, LSE Library.
    32. Paredes, Dusan & Rivera, Nathaly M., 2017. "Mineral taxes and the local public goods provision in mining communities," Resources Policy, Elsevier, vol. 53(C), pages 328-339.
    33. Papyrakis, Elissaios & Gerlagh, Reyer, 2006. "Resource windfalls, investment, and long-term income," Resources Policy, Elsevier, vol. 31(2), pages 117-128, June.
    34. Hughes, Helen, 1975. "Economic rents, the distribution of gains from mineral exploitation, and mineral development policy," World Development, Elsevier, vol. 3(11-12), pages 811-825.
    35. Mogues, Tewodaj & Benin, Samuel, 2012. "Do External Grants to District Governments Discourage Own Revenue Generation? A Look at Local Public Finance Dynamics in Ghana," World Development, Elsevier, vol. 40(5), pages 1054-1067.
    36. Sachs, Jeffrey D. & Warner, Andrew M., 2001. "The curse of natural resources," European Economic Review, Elsevier, vol. 45(4-6), pages 827-838, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Lufin, Marcelo & Soto-díaz, Juan, 2022. "Technology, geography, and diversification in a small mineral economy," LSE Research Online Documents on Economics 115013, London School of Economics and Political Science, LSE Library.
    2. Moritz Breul & Miguel Atienza, 2022. "Extractive Industries and Regional Diversification: A Multidimensional Framework for Diversification in Mining Regions," Papers in Evolutionary Economic Geography (PEEG) 2213, Utrecht University, Department of Human Geography and Spatial Planning, Group Economic Geography, revised Jul 2022.
    3. Chachu, Daniel Ofoe, 2020. "Domestic revenue displacement in resource-rich countries: What’s oil money got to do with it?," Resources Policy, Elsevier, vol. 66(C).
    4. Oyarzo, Mauricio & Paredes, Dusan, 2023. "Shocks derived from mining windfalls and horizontal transfers: Exploring the permanent income hypothesis in Chilean municipalities from a spatial competition approach," Socio-Economic Planning Sciences, Elsevier, vol. 86(C).
    5. Peres-Cajías, José & Torregrosa-Hetland, Sara & Ducoing, Cristián, 2022. "Resource abundance and public finances in five peripheral economies, 1850s–1930s," Resources Policy, Elsevier, vol. 76(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Manuel E. Lago & Santiago Lago-Peñas & Jorge Martinez-Vazquez, 2022. "On the effects of intergovernmental grants: a survey," Working Papers. Collection A: Public economics, governance and decentralization 2204, Universidade de Vigo, GEN - Governance and Economics research Network.
    2. Oyarzo, Mauricio & Paredes, Dusan, 2023. "Shocks derived from mining windfalls and horizontal transfers: Exploring the permanent income hypothesis in Chilean municipalities from a spatial competition approach," Socio-Economic Planning Sciences, Elsevier, vol. 86(C).
    3. Paredes, Dusan & Rivera, Nathaly M., 2017. "Mineral taxes and the local public goods provision in mining communities," Resources Policy, Elsevier, vol. 53(C), pages 328-339.
    4. Jorge Pablo Puig & Alberto Porto, 2021. "On the interaction between own revenues and intergovernmental transfers. Evidence from Argentinean local governments," Asociación Argentina de Economía Política: Working Papers 4508, Asociación Argentina de Economía Política.
    5. Masaki, Takaaki, 2018. "The impact of intergovernmental transfers on local revenue generation in Sub-Saharan Africa: Evidence from Tanzania," World Development, Elsevier, vol. 106(C), pages 173-186.
    6. Jorge Puig & Alberto Porto, 2022. "On the fiscal behavior of subnational governments. A long-term vision for Argentina," Asociación Argentina de Economía Política: Working Papers 4588, Asociación Argentina de Economía Política.
    7. Kayode Taiwo, 2022. "Intergovernmental Transfers and Own Revenues of Subnational Governments in Nigeria," Hacienda Pública Española / Review of Public Economics, IEF, vol. 240(1), pages 31-59, March.
    8. Mogues, Tewodaj & Benin, Samuel, 2012. "Do External Grants to District Governments Discourage Own Revenue Generation? A Look at Local Public Finance Dynamics in Ghana," World Development, Elsevier, vol. 40(5), pages 1054-1067.
    9. Manuel E. Lago & Santiago Lago-Peñas & Jorge Martinez-Vazquez, 2022. "On the effects of intergovernmental grants: a survey," Working Papers. Collection A: Public economics, governance and decentralization 2204, Universidade de Vigo, GEN - Governance and Economics research Network.
    10. Lenin H. Balza & Camilo De Los Rios & Nathaly Rivera, 2022. "Digging Deep: Resource Exploitation and Higher Education," Working Papers wp541, University of Chile, Department of Economics.
    11. Takaaki Masaki, 2016. "The impact of intergovernmental transfers on local revenue generation in Africa: Evidence from Tanzania," WIDER Working Paper Series wp-2016-113, World Institute for Development Economic Research (UNU-WIDER).
    12. Balza, Lenin & De Los Rios, Camilo & Rivera, Nathaly M., 2022. "Digging Deep: Resource Exploitation and Higher Education," IDB Publications (Working Papers) 12451, Inter-American Development Bank.
    13. Takaaki Masaki, 2016. "The impact of intergovernmental transfers on local revenue generation in Africa: Evidence from Tanzania," WIDER Working Paper Series 113, World Institute for Development Economic Research (UNU-WIDER).
    14. Waqar Wadho & Sadia Hussain, 2023. "Ethnic diversity, concentration of political power and the curse of natural resources," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 40(1), pages 113-137, April.
    15. Jaimes, Richard & Gerlagh, Reyer, 2020. "Resource-richness and economic growth in contemporary U.S," Energy Economics, Elsevier, vol. 89(C).
    16. Traviss Cassidy, 2019. "The Long-Run Effects of Oil Wealth on Development: Evidence from Petroleum Geology," The Economic Journal, Royal Economic Society, vol. 129(623), pages 2745-2778.
    17. Njangang, Henri & Asongu, Simplice A. & Tadadjeu, Sosson & Nounamo, Yann & Kamguia, Brice, 2022. "Governance in mitigating the effect of oil wealth on wealth inequality: A cross-country analysis of policy thresholds," Resources Policy, Elsevier, vol. 76(C).
    18. Konte, Maty & Vincent, Rose Camille, 2021. "Mining and quality of public services: The role of local governance and decentralization," World Development, Elsevier, vol. 140(C).
    19. Jorge Gallego & Stanislao Maldonado & Lorena Trujillo, 2018. "Blessing a Curse? Institutional Reform and Resource Booms in Colombia," Working Papers 122, Peruvian Economic Association.
    20. Maldonado, Stanislao, 2014. "The Non-Monotonic Political Effects of Resource Booms," MPRA Paper 85649, University Library of Munich, Germany, revised 18 Dec 2017.

    More about this item

    Keywords

    Subnational crowding out; Resource windfalls; Mining taxes;
    All these keywords.

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • Q32 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Exhaustible Resources and Economic Development
    • Q33 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Resource Booms (Dutch Disease)

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jrpoli:v:64:y:2019:i:c:s0301420719303484. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/30467 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.