Do Oil Windfalls Improve Living Standards? Evidence from Brazil

We use variation in oil output among Brazilian municipalities to investigate the effects ofresource windfalls. We find muted effects of oil through market channels: offshore oil has noeffect on municipal non-oil GDP or its composition, while onshore oil has only modest effects onnon-oil GDP composition. However, oil abundance causes municipal revenues and reportedspending on a range of budgetary items to increase, mainly as a result of royalties paid byPetrobras. Nevertheless, survey-based measures of social transfers, public good provision,infrastructure, and household income increase less (if at all) than one might expect given theincrease in reported spending. To explain why oil windfalls contribute little to local livingstandards, we use data from the Brazilian media and federal police to document that very largeoil output increases alleged instances of illegal activities associated with mayors.[...]