Federal tax policies, congressional voting and natural resources

Perez-Sebastian, Fidel; Raveh, Ohad

Abstract

Can abundance of natural resources affect legislators' voting behaviour 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 favour 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 US 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 US 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 and (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 behaviour over federal tax policies.

Citation

Perez-Sebastian, F., & Raveh, O. (2019). Federal tax policies, congressional voting and natural resources. Canadian Journal of Economics / Revue Canadienne d'Économique, 52(3), 1112-1164. https://doi.org/10.1111/caje.12404

• Journal Article Type: Article
• Acceptance Date: Nov 21, 2018
• Online Publication Date: Aug 27, 2019
• Publication Date: Jan 1, 2019
• Deposit Date: Nov 21, 2018
• Publicly Available Date: Jan 2, 2021
• Journal: Canadian Journal of Economics
• Print ISSN: 0008-4085
• Publisher: Wiley
• Peer Reviewed: Peer Reviewed
• Volume: 52
• Issue: 3
• Pages: 1112-1164
• DOI: https://doi.org/10.1111/caje.12404
• Keywords: Federal tax changes; Natural resources; Voting behavior; Federalism
• Public URL: https://hull-repository.worktribe.com/output/1157033
• Publisher URL: https://onlinelibrary.wiley.com/doi/full/10.1111/caje.12404
• Contract Date: Nov 21, 2018