The effect of emancipating municipalities on local public finances: evidence for brazil
DOI:
https://doi.org/10.55532/1806-8944.2021.127Keywords:
Municipal division, Regional Finance, Tax FederalismAbstract
Brazil experienced a wave of new municipalities in the 1990s, where 1,016 local administrations were emancipated. Previous empirical evidence is inconclusive about the efficiency and welfare gains from this decentralization process. This paper aims to investigate the consequences of emancipations on different tax characteristics. We use a quasi-experimental approach based on the Difference-in-Differences’ method and compare emancipated municipalities with those that tried and failed to emancipate. The results indicate an increase in expenditures associated with the maintenance of the government structure and capital goods, while social expenditures did not suffer a significant impact. Regarding local tax collection, we did not observe changes in the revenues themselves, but there was an increase in resources from intergovernmental transfers and credit operations. These results suggest that the decentralization shock changed the composition of local spending and brought about greater tax dependence for local governments.
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