Abstract
The paper proposes an asymmetric relationship between oil rents and institutions such that only positive oil windfalls adversely affect institutional quality, and negative oil windfalls have no impact. We test this theory empirically by studying the dynamics of institutional quality in Russian regions. We find that increases in tax revenues caused by exogenous positive oil price shocks do not change regional income but increase corruption and reduce regional democracy and governance quality; declines in tax revenues from negative oil price shocks do not affect institutional quality but decrease regional income.
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