The effects of the application of petroleum royalties on public investments in Brazilian municipalities

The enactment of Law 9.478 of 1997 provided greater inflow of royalties from oil and natural gas in some municipalities of Brazil. Being a transitional revenue, it is relevant to investigate the application of these resources from the perspective of public finances. This article aims to analyze the effects of applying petroleum royalties on public investments in Brazilian municipalities over the period 1999-2011. The methodological procedure involved the use of econometric model of panel, from the use of variable budget revenues, royalties and capital expenditures of the respective municipalities, obtained from secondary sources. The results show that the municipalities who are most dependent of royalties increased capital expenditures with the royalties' growth, both by per capita perspective as the tax rate.