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Do Oil Windfalls Improve Living Standards? Evidence from Brazil

  • Francesco Caselli
  • Guy Michaels

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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Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0960.

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Date of creation: Dec 2009
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Handle: RePEc:cep:cepdps:dp0960
Contact details of provider: Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

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