Oil windfalls and local fiscal effort: a propensity score analysis

11.4.2014 Työpapereita Lauro Carnicelli, Fernando Antonio Slaibe Postali

Abstract

With the pre-salt discoveries, the discussions about the impact of oil windfalls – royalties and special participation – on Brazilian localities have intensified. This article aims to contribute to the understanding of the issue, using a methodology that allows the building of a counterfactual for municipalities treated with oil resources. The aim is to investigate whether these transfers reduce the own tax effort of cities covered by such revenues. For this, we apply the doubly robust method to a panel of municipalities observed from 2000 to 2009. The method consists of two stages. Firstly, it estimates the likelihood of receiving oil revenues conditioned to observable variables; in the second stage, a fixed-effects model is estimated with data belonging to a common support constructed through the estimated propensity scores in the first stage. The results show that there is a negative effect of oil royalties on the fiscal effort of the cities benefited. However, this result does not occur when one computes the average effect on all cities.

Julkaisun tiedot

Carnicelli, L., & Postali, F.A.S. (2014), Oil windfalls and local fiscal effort: a propensity score analysis, Working Papers No. 2014-03, Department of Economics, University of São Paulo (FEA-USP).