Resource windfalls and public sector employment: evidence from municipalities in Chile

Felipe Larraín and Oscar Perelló

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: We study the effect of extra resource revenues on employment expenditures at the municipal level in Chile. We exploit a novel quasi-experiment: a legal reform in 2005 that increased the portion of the income collected from mining licenses that is assigned to municipalities where mines operate from 30 to 50 percent. Our main result is a statistically significant expansion of municipal employment expenditures in mining municipalities, driven by expenditures on long-term employment. Additionally, we found a meaningful effect on allowances to the municipal council, but we did not find a robust impact on transfers to health, transfers to community programs, or municipal investment, while the increase in transfers to education is small with respect to the employment expenditures effect. These results are complemented by evidence of an increase in the mayor’s probability of reelection not related to the provision of public goods, which links our findings with the clientelism mechanism of resource rents. Our results also have several implications for the fiscal decentralization debate in resource-abundant economies.

Keywords: natural resources; clientelism; municipalities; fiscal decentralization (search for similar items in EconPapers)
JEL-codes: H41 H72 H75 O13 Q33 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2019-04-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published in Economía, 1, April, 2019, 19(2), pp. 127 - 167. ISSN: 1529-7470

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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:123189

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