Oil Royalties and the Provision of Public Education in Brazil

Abstract

This paper examines how resource-based windfalls to Brazilian municipalities' revenues affects their provision of education. We exploit a feature of Brazilian legislation that mandates that revenues accrued through oil production must be shared with municipalities that are judged to be owed royalties through a series of exogenously determined criteria and formulae. The as-if random distribution of oil revenues to municipalities allow us to investigate the causal relationship between oil royalties and provision of public education in Brazil. Using within-municipality variation in oil revenues per capita, we find that receiving more oil royalties increases municipal education expenditures, which translates into more teachers, classrooms, and schools per capita. Importantly, these effects are present only for municipally funded schools and not for federal, state, or private schools. Exploration of underlying mechanisms suggest that resource-based windfalls can have beneficial impacts on the provision of education by increasing educational resources in a municipality.