Asset Ownership, Windfalls, and Income: Evidence From Oil and Gas Royalties
51 Pages Posted: 5 May 2017
Date Written: May 4, 2017
The recent oil and gas production boom in the contiguous United States generated tens of billions in additional royalty income for owners of oil and gas rights. We use the royalty income shock to study the local multiplier effect of unanticipated income and find that each royalty dollar received by county residents created an additional $0.50 in local income, mostly through greater wage income. The finding suggests that royalty payments and government transfers have similar local multiplier effects. In aggregate, the total income effect from royalties was $68 billion in 2014, or 0.5 percent of U.S. personal income. Over the 2000 to 2014 period, royalty income and its multiplier effect accounted for more than two-thirds of the local income effect of oil and gas development. The estimates help explain why the income effects of drilling may vary widely across regions based on patterns of resource ownership.
Keywords: resource ownership; oil and gas; royalties; shale; income multiplier
JEL Classification: D23, R11, Q32, Q33
Suggested Citation: Suggested Citation