An analytical framework predicts that, in response to an exogenous increase in resource-based government revenue, a benevolent government will partially substitute away from taxing income, increase spending and save. Fifty-one years of US-state level data are largely consistent with this theory. A baseline fixed effects model predicts that a $1.00 increase in resource revenue results in a $0.25 decrease in nonresource revenue, a $0.43 increase in spending and a $0.32 increase in savings. Instrumenting for resource revenue reveals that a positive revenue shock is largely saved and the rest is transferred back to residents in the form of lower non resource tax rates. (JEL H71, H72, H76, Q38, R11)
"US State Fiscal Policy and Natural Resources."
American Economic Journal: Economic Policy,
State and Local Taxation, Subsidies, and Revenue
State and Local Budget and Expenditures
State and Local Government: Other Expenditure Categories
Nonrenewable Resources and Conservation: Government Policy
Regional Economic Activity: Growth, Development, Environmental Issues, and Changes