The Effect of Petroleum Royalties on Social Indicators of Brazilian Municipalities

Abstract

In 1997 the Brazilian government passed Law number 9478, establishing new criteria for petroleum royalty transfers to Brazilian municipalities. The goal of this paper is to evaluate whether royalties distributed under this law contributed to improving social indicators relative to the national average in the eligible municipalities. We used a 'difference-in-differences' measurement to compare changes in selected social indicators within affected and unaffected municipal districts in 1991 and 2000. Results show that while royalties had a negative impact on indicators linked to infrastructure, such as the percentage of population with power and water supply, indicators related to income inequalities — Gini coefficient and poverty rate — were positively impacted.

Keywords: oil rents, regional development, Latin America, Brazil

JEL Classification: Q32, Q38