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

Larraín, Felipe and Perelló, Oscar (2019) Resource windfalls and public sector employment: evidence from municipalities in Chile. Economía, 19 (2). 127 - 167. ISSN 1529-7470

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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.

Item Type:	Article
Official URL:	https://economia.lse.ac.uk/
Additional Information:	© 2019 LACTEA
Divisions:	LSE
Subjects:	H Social Sciences > HC Economic History and Conditions H Social Sciences > HJ Public Finance
JEL classification:	H - Public Economics > H4 - Publicly Provided Goods > H41 - Public Goods H - Public Economics > H7 - State and Local Government; Intergovernmental Relations > H72 - State and Local Budget and Expenditures H - Public Economics > H7 - State and Local Government; Intergovernmental Relations > H75 - State and Local Government: Health, Education, and Welfare O - Economic Development, Technological Change, and Growth > O1 - Economic Development > O13 - Agriculture; Natural Resources; Energy; Environment; Other Primary Products Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q3 - Nonrenewable Resources and Conservation > Q33 - Resource Booms
Date Deposited:	03 Jul 2024 17:18
Last Modified:	03 Jul 2024 17:18
URI:	http://eprints.lse.ac.uk/id/eprint/123189

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