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Local natural resource curse?

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  • Borge, Lars-Erik
  • Parmer, Pernille
  • Torvik, Ragnar

Abstract

Utilizing an output based efficiency measure we investigate whether higher public revenues harm efficiency in the production of local public goods. Much variation in revenues among Norwegian local governments can be explained by revenues collected from hydropower production. This revenue variation, combined with good data availability, can be used to address a main concern in the resource curse literature; that public sector revenue, and in particular the revenue from natural resources, is endogenous. We obtain an exogenous measure of local revenue by instrumenting the variation in hydropower revenue, and thus total revenue, by topology, average precipitation and meters of river in steep terrain. We find support for what we term the Paradox of Plenty hypothesis—that higher local government revenue reduces the efficiency in production of public goods. We do not find support for what we term the Rentier State hypothesis—that revenue derived from natural resources should harm efficiency more than revenue derived from other sources such as taxation.

Suggested Citation

  • Borge, Lars-Erik & Parmer, Pernille & Torvik, Ragnar, 2015. "Local natural resource curse?," Journal of Public Economics, Elsevier, vol. 131(C), pages 101-114.
  • Handle: RePEc:eee:pubeco:v:131:y:2015:i:c:p:101-114
    DOI: 10.1016/j.jpubeco.2015.09.002
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    Citations

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    Cited by:

    1. Pernille Parmer, 2014. "Hydropower Policy and Energy Saving Incentives," Working Paper Series 16014, Department of Economics, Norwegian University of Science and Technology.
    2. Asatryan, Zareh & Heinemann, Friedrich & Yeter, Mustafa & Rubio, Eulalia & Rinaldi, David & Zuleeg, Fabian, 2016. "Public sector reform: How the EU budget is used to encourage it. Study," ZEW Expertises, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research, number 147039.
    3. Maldonado, Stanislao, 2014. "The Non-Monotonic Political Effects of Resource Booms," MPRA Paper 85649, University Library of Munich, Germany, revised 18 Dec 2017.
    4. Erica Pani & Nancy Holman, 2014. "A Fetish and Fiction of Finance: Unraveling the Subprime Crisis," Economic Geography, Clark University, vol. 90(2), pages 213-235, April.
    5. James Cust & Torfinn Harding & Pierre-Louis Vezina, 2017. "Dutch Disease Resistance: Evidence from Indonesian Firms," OxCarre Working Papers 192, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
    6. Stefan Leknes & Jørgen Modalsli, 2018. "Who benefited from industrialization? The local effects of hydropower technology adoption," Discussion Papers 874, Statistics Norway, Research Department.
    7. Iacono, Roberto, 2016. "No blessing, no curse? On the benefits of being a resource-rich southern region of Italy," Research in Economics, Elsevier, vol. 70(2), pages 346-359.
    8. Solé-Ollé, Albert & Viladecans-Marsal, Elisabet, 2017. "Housing booms and busts and local fiscal policy," ZEW Discussion Papers 17-001, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    9. Acar, Sevil & Karahasan, Burhan Can, 2015. "Uncovering Norway’s regional disparities with respect to natural riches," REGION, European Regional Science Association, vol. 2, pages 1-31.
    10. repec:eee:pubeco:v:152:y:2017:i:c:p:47-54 is not listed on IDEAS
    11. Petar Kurecic & Filip Kokotovic, 2017. "Examining the "Natural Resource Curse" and the Impact of Various Forms of Capital in Small Tourism and Natural Resource-Dependent Economies," Economies, MDPI, Open Access Journal, vol. 5(1), pages 1-24, February.
    12. Pernille Parmer, 2014. "Natural Rerources and public Sector Wages," Working Paper Series 16114, Department of Economics, Norwegian University of Science and Technology.

    More about this item

    Keywords

    Resource curse; Paradox of Plenty; Rentier State; Identification; Local government; Political economy;

    JEL classification:

    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H27 - Public Economics - - Taxation, Subsidies, and Revenue - - - Other Sources of Revenue
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • H75 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Government: Health, Education, and Welfare
    • Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation

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