Federalism and Public Resources in Brazil: Federal Discretionary Transfers to States

Abstract

This paper analyses intergovernmental relations in Brazil based on the dynamics of the distribution of federal discretionary transfers to the states between 1997 and 2008. The theme becomes more relevant when we consider the process of fiscal recentralization that has taken place in Brazil, particularly from 1994 on, and the importance of discretionary transfers for state budgets. Our purpose is to identify which factors can account for a higher or lower state's share in overall resources, by building on two explanatory dimensions: the partisan-political and the social-redistributive. The first one examines how the political dynamic affects resource allocation; the second, if discretionary transfers exhibit a redistributive character across states. Our findings show that a governor's partisan alignment with the president or with the president's government coalition are important factors in determining higher resource allocation for his/her state, and that states that are overrepresented in the lower chamber are favored. We have also found a redistributive character associated with federal discretionary transfers, favoring states with lower Human Development Index (HDI) rankings.Keywords: Federalism; Fiscal federalism in Brazil; Federal discretionary transfers. introductionT his work will analyze how the federal government allocates discretionary fiscal resources to the Brazilian states. More specifically, it will investigate the factors that account for the distribution of Brazil's federal government discretionary transfers, the bpsr (2011) 5 (2) 95 94 -116 Transferências Voluntárias da União (TVU), to the states from 1997 to 2008. From this perspective, this work is embedded in the debate about Brazilian fiscal federalism.A main feature of the Brazilian federal system is the tripartite configuration of its political power. The federal government, the states, and the municipalities have governments of their own, and their own financial resources and administrative authority. Hence, understanding the Brazilian public sector entails understanding these three power entities and how they relate to each other. Intergovernmental fiscal relations, the so-called fiscal federalism, are a key feature of the configuration of the Brazilian State. To further our understanding of Brazil's fiscal federalism an analysis may be conducted on the distribution of public resources and expenses across governmental levels, on what defines the level of resource decentralization, and on how vertical relations (intergovernmental) and horizontal (national Executive and Legislative) bear on the federation's sharing of revenues and expenditures.In this work we aim to explore one of the dimensions of fiscal federalism, Brazil's TVUs, which are, as aforementioned, discretionary transfers from the federal government to the state governments. These transfers represent one of the three main sources of funding of these subnational units, the other two being the taxes they levy and mandatory federal transfers as laid out in the constitutional cha...

Fiscal Space of Brazilian States

“…See Rodden (2004) and Bahl and Bird (2008) for a discussion of the potential impact of high-level fiscal vertical imbalances on the fiscal effort of subnational governments. See Arretche and Rodden (2004); Figuereido and Limongi (2008); and Miranda and Pereira (2011) for a discussion of how partisanship might affect the access Brazilian States have to federal transfers. 12 The results of using alternative estimation methods are shown in the appendix.…”