Comparative Politics & Political Economy Webinar Series presents:

The Effect of Oil Windfalls on Corruption: Evidence from Brazil
Kathryn Baragwanath Vogel

11/5 | 12:30 to 1:30pm

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Meeting ID: 935 2793 3044  | Passcode: 218057

Abstract: Oil royalties provide a substantial but volatile inflow of non tax-payer money to municipal coffers. While a large literature examines the impact of oil on democratic emergence and stability, I examine how oil impacts corruption and the types of candidates elected under democracy. To predict the effects of oil royalties, I develop a formal model with moral hazard, adverse selection and endogenous entry. I show that natural resource windfalls generate the strategic entry of corrupt candidates and prevent voters from distinguishing politicians’ integrity, creating cycles of corruption and reelection. I test this theory in Brazil, where offshore royalties are determined and allocated exogenously based on a geographic rule and the international price of oil. Consistent with the model, I find that a one standard deviation increase in oil royalties produces a 29% increase in corruption. The effects of windfalls on corruption are larger after elections during booms and lower during busts. Furthermore, oil royalties lead to a reelection cycle: when the price of oil is expected to be higher, incumbents are reelected more often than when the price of oil is expected to fall, independent of economic and individual level variables. I show that strategic entry of corrupt candidates during booms is likely the cause of these corruption and reelection cycles, as predicted by the theory. Taken together, these results point to a strong effect of oil royalties on local level corruption and electoral outcomes. View paper here.

Bio: Kathryn Baragwanath Vogel is a PhD candidate in the political science department at the University of California, San Diego. Her research focuses on the political economy of natural resources and environmental politics, with a focus on Latin America, where she is from. Her research has been published in the Journal of Urban Economics and PNAS. She is an affiliated student with the Big Pixel Initiative at UCSD and an IGCC fellow, and her work has been funded by the World Bank, the International Growth Center, the International Center at UCSD, CILAS and the Tinker Fund. Prior to UCSD, she worked as a research economist at the Chilean Antitrust Agency, Fiscalía Nacional Económica. She received a BA degree and Masters in Economics from the Pontificia Universidad Católica de Chile.