Natural resource windfalls and efficiency of local government expenditures: evidence from Peru

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reponame:Repositorio Institucional EdocUR

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Ardanaz, Martin; Maldonado, Stanislao
Facultad de Economía; Universidad del Rosario
330.98; Recursos naturales::Aspectos Económicos; Gobierno local::Perú; Resource booms; Intergovernmental transfers; Local government efficiency; Q33; H70; H76; Resource booms, intergovernmental transfers, local government efficiency; Recursos naturales -- Aspectos económicos; Gobierno local -- Perú
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paper description
We study the role of natural resource windfalls in explaining the efficiency of public expenditures. Using a rich dataset of expenditures and public good provision for 1,836 municipalities in Peru for period 2001-2010, we estimate a non-monotonic relationship between the efficiency of public good provision and the level of natural resource transfers. Local governments that were extremely favored by the boom of mineral prices were more efficient in using fiscal windfalls whereas those benefited with modest transfers were more inefficient. These results can be explained by the increase in political competition associated with the boom. However, the fact that increases in efficiency were related to reductions in public good provision casts doubts about the beneficial effects of political competition in promoting efficiency.