Winning and Losing the Resource Lottery : Governance after Uncertain Oil Discoveries

Natural resource discoveries lead to anticipation, uncertainty, and potentially large revenue windfalls for local governments. I leverage exogenous subnational variation in offshore oil discoveries in Brazil to identify dynamic effects of news and revenue shocks on local public finances, public goods provision, and politics. Municipalities where discoveries are realized enjoy significant growth in revenues and spending, but fail to improve public goods provision or stimulate local economic activity. Municipalities that experience discovery news shocks but never receive windfalls suffer long-term declines in revenues, investment, and public goods provision relative to never-treated controls. I show that electoral responses underlie these dynamics: discovery announcements draw less-educated candidates into local politics, and shortfalls between anticipated and realized oil revenues increase political turnover. These findings highlight the importance of accounting for heterogeneity in discovery realizations, and reveal mismanagement of windfalls and adjustment costs after disappointment as two faces of the Resource Curse