Sources of Revenue and Government Performance: Evidence from Colombia
64 Pages Posted: 17 Nov 2018 Last revised: 31 Aug 2020
Date Written: September 26, 2019
This paper tests the hypothesis that governments financed through taxes are more accountable and better governed than those relying on non-tax revenue. I focus on municipal governments in Colombia and exploit the timing of cadastral updates and fluctuations in the world price of oil as sources of plausibly exogenous variation in property tax revenue and natural resource royalties. I find that an increase to tax revenue has a much larger effect than a same-sized increase to oil royalties on local public goods in the areas of education, health and water, despite earmarking of royalties for basic services in these areas. Higher tax revenue also reduces the probability of a disciplinary prosecution against the municipal mayor, while the opposite is true for royalties, especially for prosecutions related to financial mismanagement.
Keywords: taxation, accountability, governance, natural resource curse, public goods, corruption
JEL Classification: D73, H27, H41, H71
Suggested Citation: Suggested Citation