Perez-Sebastian F. and O. Raveh
Canadian Journal of Economics – forthcoming

Keywords:


Abstract: Can abundance of natural resources affect legislators’ voting behavior over federal tax policies? We construct a political economy model of a federalized economy with district heterogeneity in natural resource abundance. The model shows that representatives of natural resource rich districts are more (less) willing to vote in favor of federal tax increases (decreases). This occurs because resource rich districts are less responsive to federal tax changes due to the immobile nature of their natural resources. We test the model’s predictions using data on roll-call votes in the U.S. House of Representatives over the major federal tax bills initiated during the period of 1945-2003, in conjunction with the presence of active giant oil fields in U.S.
Congressional districts. Our identification strategy rests on plausibly exogenous giant oil field discoveries and exploitation, and narrative-based aggregate federal tax shocks that are exogenous to individual Congressional districts and legislators. We find that: i) resource rich Congressional districts are less responsive to changes in federal taxes; ii) representatives of resource rich Congressional districts are more (less) supportive of federal tax increases (decreases), controlling for legislator, Congressional district, and state indicators. Our results indicate that resource richness is approximately half as dominant as the main determinant, namely party affiliation, in driving legislators’ voting behavior over federal tax policies.