Intergovernmental transfers and public spending in Brazilian municipalities

Coordenadores/Principal Investigator: 
Resumo/Abstract: 

We estimate the effects of unconditional (full fiscal decentralization) versus conditional (partial fiscal decentralization) block grants on local public spending in Brazilian municipalities. Our results suggest that
the effect of unconditional and conditional transfers do not differ statistically. Their combination promotes
a full crowding-in effect on aggregate public spending — i.e., for $1 of unconditional and conditional grant
receipts; we find $1 of additional local public expenditures, greater than the corresponding effect of local
income, providing further evidence for the flypaper effect. Moreover, the effect of unconditional transfers
on education (health) spending is smaller than the effect of conditional education (health) transfers but
greater than the corresponding effect of local income. We consider four strategies to identify causal effects
of federal grants and the local income on fiscal responses regarding Brazilian local governments: (i) a fuzzy regression discontinuity design, (ii) Redistributive rules of education funds, (iii) Oil and Gas production, and (iv) Rainfall deviations from the historical mean.

Ano de Conclusão/Year of Conclusion: 
Em andamento/In Progress
Co-assistentes de pesquisa: 

Paulo Arvate

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