The Brazilian intergovernmental fiscal transfer for conservation: a successful but self-limiting incentive program

Brazil's ecological intergovernmental fiscal transfer (ICMS-E) is a conservation incentive for protected areas (PAs). It redistributes tax revenues to reward municipalities for hosting PAs. To quantify its impact on the creation of state and municipal PAs, we used panel regressions on a longitudinal municipality dataset that combined information on PA creation and ICMS-E implementation for 2060 municipalities in 6 Brazilian states in the Atlantic Forest region, from 1987 to 2016. We found that the percent of the municipal area covered with state or municipal PAs increased as a consequence of ICMS-E implementation. However, the magnitude of this effect declined as the ICMS-E revenue is shared more widely with the expansion of PAs, reducing the gain from new PAs. We also found that ICMS-E policy primarily spurred the creation of PAs with less restrictive rules - similar to IUCN category V reserves − both by municipalities and states. For more restrictive PAs with higher local costs for municipalities, ICMS-E promoted state-proposed PAs but not municipal. Our results suggest that state institutions use ICMS-E to incentivize local implementation of their conservation preferences, including strict conservation, while municipal governments respond mostly with low-cost actions to increase their revenues.