The Political Resource Curse

Abstract

The paper studies the effect of additional government revenues on political corruption and on the quality of politicians, both with theory and data. The theory is based on a version of the career concerns model of political agency with endogenous entry of political candidates. The evidence refers to municipalities in Brazil, where federal transfers to municipal governments change exogenously according to given population thresholds. We exploit a regression discontinuity design to test the implications of the theory and identify the causal effect of larger federal transfers on political corruption and the observed features of political candidates at the municipal level. In accordance with the predictions of the theory, we find that larger transfers increase political corruption and reduce the quality of candidates for mayor.

Buying votes versus supplying public services: Political incentives to under-invest in pro-poor policies

“…Among the other correlates that appear significant in Tables 1-2, municipal fiscal dependency on higher tiers of government is suggestively associated with lower health services and poorer outcomes. This may be consistent with the results and argument of Brollo et al (2013) of a "political resource curse" where fiscal dependency reduces the quality and performance of local political leaders. Lame-duck mayors, in their third consecutive term in office, are associated with reduced investments in health, and poorer health outcomes.…”

What Have We Learned about the Resource Curse?

“…New insights on this issue have emerged from subnational studies in democracies and semidemocracies, including Argentina (Gervasoni 2010), Brazil (Brollo et al 2013, Monteiro & Ferraz 2010, India (Asher & Novosad 2014), Iran (Mahdavi forthcoming), and the United States (Goldberg et al 2008, Wolfers 2009). All these studies find that oil windfalls (or, in the Brollo et al and Gervasoni studies, windfall-like federal transfers) tend to lengthen the terms in office of elected local officials.…”

“…In Brazil, Brollo et al (2013) find that windfall-like federal transfers that are plausibly exogenous to local conditions simultaneously boost re-election rates and reduce the education levels of mayoral candidates. In mineral-rich regions of India, Asher & Novosad (2014) report that global price shocks lead to both incumbency advantages in local elections and more frequent victories by candidates with criminal records.…”

Keeping the Public Purse: An Experiment in Windfalls, Taxes, and the Incentives to Restrain Government

“…While much of the focus has been on rents from oil and other natural resources, there is growing recognition that they can arise from other types of "unearned" revenue, including discretionary foreign aid (Moore 1998;Morrison 2009;Smith 2008) and, for many poor subnational governments, central transfers (Brollo et al 2012;Gervasoni 2010).…”