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Deficit Targeting: An Incentive Mechanism for Subnational Fiscal Deficit Reduction in Brazil

In: Economic Development in Latin America

Author

Listed:
  • Mauricio S. Bugarin
  • Mirta N. S. Bugarin
  • Henrique A. Pires

Abstract

The traditional debate on fiscal federalism focuses on the trade-off between allocative efficiency and distributive concerns. From the point of view of the allocation of public resources, it is well known that local governments are better suited to accommodate in an efficient way differing preferences among agents. This view suggests that the best fiscal policies are decided at a decentralized local government level. However, from the point of view of the distribution of wealth, the central government has a clear role in designing revenue-sharing rules to achieve a more equitable redistribution of income among different regions of a country with heterogeneous levels of development. This second view suggests a higher level of centralization in a government’s fiscal policy decisions.1 Therefore, the optimal level of decentralization in a federation must reflect the right balance between those two opposing views.2

Suggested Citation

  • Mauricio S. Bugarin & Mirta N. S. Bugarin & Henrique A. Pires, 2010. "Deficit Targeting: An Incentive Mechanism for Subnational Fiscal Deficit Reduction in Brazil," Palgrave Macmillan Books, in: Hadi Salehi Esfahani & Giovanni Facchini & Geoffrey J. D. Hewings (ed.), Economic Development in Latin America, chapter 16, pages 254-272, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-29738-8_16
    DOI: 10.1057/9780230297388_16
    as

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