The Political Resource Curse

American Economic Review - 103 (2013), 1759-1796

joint with Fernanda Brollo, Roberto Perotti, and Guido Tabellini

The paper studies the effect of additional government revenues on political corruption and on the quality of politicians, both with theory and data. The theory is based on a version of the career concerns model of political agency with endogenous entry of political candidates. The evidence refers to Brazil, where federal transfers to municipal governments change exogenously at given population thresholds. We exploit a regression discontinuity design to identify the causal effect of larger transfers on corruption and political selection at the municipality level. The data reveal that larger transfers increase observed corruption and reduce the average education of candidates for mayor. These and other more specific empirical results are in line with the predictions of the theory.