Do Oil Windfalls Improve Living Standards? Evidence from Brazil
Paper No' CEPDP0960:
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Keywords: Brazil; corruption, Dutch disease, fiscal windfalls, natural resources and oil
JEL Classification: E02; E62; H11; H40; H71; H72; H75; H76; O11; O13; O32; O33
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This Paper is published under the following series:
CEP Discussion Papers
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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.