Harnessing oil revenues for sustainable development: evaluating Brazil’s “royalties’ law” and its impact on healthcare

This study evaluates the impact of Law No. 12,858/2013, known as the "royalties law", on the allocation of resources for healthcare in Brazilian municipalities that receive oil revenues. This law, which has not been empirically evaluated before, changes the way oil revenues are allocated and mandates that a portion be directed to healthcare and education to promote sustainable development and intergenerational equity. Using the difference-in-differences method combined with propensity score matching, we investigate whether there was an increase in expenditures on primary healthcare and whether this resulted in improvements in both primary care and more complex healthcare services. To achieve this goal, we use a large set of disaggregated health indicators, such as expenditures on primary care, child vaccination, infant mortality, hospital admissions, and inpatient mortality. The results indicate that the royalties law is associated with a positive impact on healthcare services in the benefiting municipalities. The increase in primary care investments in the treated municipalities is associated with the improvement of this sector, strengthening preventive actions and reducing the need for more complex services. More effective monitoring of pregnant women and expanded child vaccination contributed to lower infant mortality rates. In medium and high complexity healthcare services, there was a reduction in hospital admissions and inpatient mortality. This suggests that strengthening primary care can optimize the functioning of the entire healthcare system. Furthermore, it is important for policymakers in Brazil to reassess the minimum 15% of own revenue that municipalities must allocate to healthcare. The robustness of our conclusions is confirmed by a triple difference model, which indicates that the observed effects are not driven by pre-existing trends or other confounding factors. Additionally, our findings are not sensitive to tests for parallel trends, falsification in treatment assignment, or variables unrelated to primary care. This study contributes to understanding how natural resource revenues can be used to promote sustainable development and improve public health. It also offers valuable insights for policymakers in resource-rich countries, helping to design effective strategies to manage revenues and invest in human capital sustainably.