Asset Ownership, Windfalls, and Income: Evidence from Oil and Gas Royalties
Download paper, RWP 16-12, November 2016; Revised May 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.
JEL Classification: D23, Q32, Q33, R11
- Brown, Jason P., Timothy Fitzgerald, and Jeremy G. Weber. 2016. “Asset Ownership, Windfalls, and Income: Evidence from Oil and Gas Royalties”. Federal Reserve Bank of Kansas City, Research Working Paper 16-12, November. Available at https://doi.org/10.18651/RWP2016-12