Curse or blessing? The sustainable development dilemma of mining regions in Brazil

One of the rare consensual points among different resource-based economic analytical approaches refers to the strategic role of rent from mineral extraction, as a decisive tool to ensure that the temporary wealth generated in the present can turn into permanent income in the future. For this reason, evaluation, distribution and use of mining rent plays a central role in the sustainable development of mining cities. Brazilian legislation provides for this at the municipal level by means of participation in the financial results of mineral extraction accomplished in these municipalities, with the Financial Compensation for Mineral Exploration (CFEM). CFEM is a type of ad valorem royalty, which charges taxes of up to 3% of the net revenue of mineral production. However, legislation does not establish how these resources should be used. Therefore, there is wide variation in the use of CFEM income among Brazilian mining cities. A study from a sample of the 15 largest mining cities in eight Brazilian states made possible identification of two main patterns with regards to the use of CFEM which were labeled "sustained use" and " the pitfall of the single treasury." In that regard, this article discusses the pressuring factors that contribute to these patterns, as well as the institutional arrangements which may be more favorable to inducing more sustained use of CFEM.