Does Oil Make Leaders Unaccountable? Evidence from Brazil's off shore oil boom,” unpublished, PUC-Rio

We examine the political economy mechanisms that link resource abundance and economic development by analyzing the recent increase in Brazil’s oil production and the large oil royalty payments made to municipalities. We explore a fixed geographic rule which determine who receive oil royalties and investigate how incumbents spend oil windfall and the impact of these rents on local elections. We show that royalty payments create a large incumbency advantage in the two elections that follow oil windfall boom, but this effect disappears in the medium-run. Oil windfall is associated with a large increase in the number of employees, but we don’t find any significant impacts on education or in health supply. We also exploit the mechanisms through which mayors are able to remain in power only in the short-term. Our results are consistent with a learning story, in which voters are initially unaware about the huge increase in royalty rents. These rents were used to create more public jobs, which was interpreted by voters as a signal of incumbent’s ability. Oil rents continued to increase along the years but were not translated into improvements in living standards, which lead voters to oust the incumbent. Thus, our results indicate that oil does not make leaders unaccountable and that a democratic system is crucia