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We use plausibly exogenous variation in the redistribution of natural resource tax revenues in Peru to study whether transfers to local governments can stimulate economic activity in low income areas. We show that resource windfalls to non-extractive municipalities between 2006 and 2018 changed the size and composition of local government expenditures and had effects on local labor markets and household welfare. We find an increase in labor force participation, earnings, and formality. The windfalls spur improvements in sectors that do not directly serve municipalities and especially benefit poorer rural areas, which experienced significant increases in household income and consumption, along with a decline in poverty.
Authors

Senior Research Economist
Antonella Bancalari is a Senior Research Economist at the Institute for Fiscal Studies.

Research Associate Royal Holloway, University of London
Juan is an IFS Research Associate and an Professor of Economics in the Department of Economics at Royal Holloway, University of London.
Working Paper details
- DOI
- 10.1920/wp.ifs.2024.5424
- Publisher
- Institute for Fiscal Studies
Suggested citation
Bancalari, A and Rud, J. (2024). Resource windfalls, public expenditures and local economies. 24/54. London: Institute for Fiscal Studies. Available at: https://ifs.org.uk/publications/resource-windfalls-public-expenditures-and-local-economies (accessed: 18 June 2025).
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