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Oil, Politics, and Corrupt Bastards

Alexander James and Nathaly Rivera ()

No 2019-04, Working Papers from University of Alaska Anchorage, Department of Economics

Abstract: We develop an analytical framework in which a natural-resource-extracting firm pays an incumbent politician both legal and illegal bribes in exchange for reductions in the severance tax rate. A positive resource shock increases the marginal benefit of a tax cut and more bribes are given. We test this theory using forty years of U.S. state-level data, measuring legal corruption as contributions to political campaigns from the oil and gas sector, and illegal corruption as both convictions of public corruption and "reflections'' of it, measured as the frequency that words like "corrupt'', "fraud'', and "bribery’’—and their iterations—appear in local newspapers. We find that oil-rich U.S. states are significantly more corrupt than their oil-poor counterparts and that this is especially true during periods of high oil prices, suggesting an underlying causal relationship. Our findings are robust to a variety of modeling assumptions and specifications suggesting that oil—through its effect on political corruption—plays an indirect, critically important, and yet previously overlooked role in shaping public and economic outcomes in the United States.

Keywords: Oil; Rents; Political Corruption; Campaign Finance; Bribery (search for similar items in EconPapers)
JEL-codes: Q33 Q32 D72 D73 (search for similar items in EconPapers)
Date: 2019-11
New Economics Papers: this item is included in nep-ene and nep-pol
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