Association for Public Policy Analysis & Management

An analytical framework predicts that a natural-resource-extracting firm pays a representative public official both legal and illegal bribes in exchange for a reduction in the severance tax rate. An increase in the value of the resource stock increases the marginal benefit of a bribe (from the firm's perspective) and results in more bribes being paid. We test this theory using U.S. panel data variation at the state-level. We use contributions to political campaigns from the oil and gas sector as a measure of legal corruption, and convictions of corruption of state and local public officials as an indicator of illegal corruption, as well as other measures of diffuse reflection of it. Our findings suggest that increasing the value of natural-resource wealth increases both legal and illegal forms of corruption. Outside Alaska, North Dakota, and Wyoming, republican law makers from oil-rich states are more likely to receive campaign contributions from the energy sector. Beyond natural resources, the theory predicts that a lack of political competition positively influences illegal contributions and negatively influences legal ones. The former prediction is supported by the data.