The Central Bank of Colombia published a Regional and Urban Economics Working Paper assessing how natural resource funds affect subnational public finances, using Colombia’s Price Savings and Stabilisation Fund (Fondo de Ahorro y Estabilización de Precios, FAEP) and municipal data from 2000 to 2010. The paper treats the FAEP’s legal eligibility rules as a natural experiment because some municipalities receiving natural resource royalties were included in the FAEP while others were not, including certain oil-export port municipalities and excluding some oil-producing and non-oil resource recipients. It finds that extraordinary natural resource revenues increased municipalities’ gross capital formation spending, but this effect was offset for municipalities participating in the FAEP. No effects were identified on operating expenditures or tax revenues, and while other (non-gross-capital-formation) capital spending rose with royalty income, there was no evidence that FAEP participation affected that category.
Central Bank of Colombia 2026-02-17
Central Bank of Colombia publishes research finding FAEP participation neutralised municipalities’ capital spending response to royalty windfalls
The Central Bank of Colombia released a paper analyzing natural resource funds' impact on subnational finances, focusing on the Price Savings and Stabilisation Fund (FAEP) and municipal data from 2000 to 2010. The study found that while extraordinary natural resource revenues increased municipalities' gross capital formation spending, this effect was mitigated for those in the FAEP. No significant effects were observed on operating expenditures or tax revenues.