The Impact of Royalties from the Exploitation of Natural Resources on Municipal Public Finances in Brazil: Estimates Based on Modified Bartik Instruments
DOI:
https://doi.org/10.55532/1806-8944.2024.235Keywords:
Municipal Public Finances, Oil Royalties, Water Royalties, Mining Royalties, Bartik InstrumentsAbstract
The exploitation of natural resources in Brazil collects and distributes royalties to municipalities as a result of three economic activities: oil and gas exploration, mining and the use of water resources for electricity. The economic literature has mainly investigated the case of oil, neglecting the others. This paper carries out a general investigation of the simultaneous impact of these three royalties on municipal public finances, and details circumstances that suggest endogeneity mechanisms in the distribution of royalties. In this context, it proposes an instrumental variable technique that adequately deals with the problem. Econometric results indicate that royalties cause an expansion in spending on health, education and public investment - at least for some classes of royalties - and do not increase spending on personnel, but reduce the effort to collect local taxes. The investigation of heterogeneous effects suggests that high volumes of royalties per capita are behind these results.
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