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Financing local development: Quasi-experimental evidence from municipalities in Brazil, 1980-1991

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Abstract

This paper uses a regression discontinuity design to estimate the impact of additional unrestricted grant financing on local public spending, public service provision, schooling, literacy, and income at the community (municipio) level in Brazil. Additional transfers increased local public spending per capita by about 20% with no evidence of crowding out own revenue or other revenue sources. The additional local spending increased schooling per capita by about 7% and literacy rates by about 4 percentage points. The implied marginal cost of schooling -accounting for corruption and other leakages- amounts to about US$ 126, which turns out to be similar to the average cost of schooling in Brazil in the early 1980s. In line with the effect on human capital, the poverty rate was reduced by about 4 percentage points, while income per capita gains were positive but not statistically significant. Results also suggest that additional public spending had stronger effects on schooling and literacy in less developed parts of Brazil, while poverty reduction was evenly spread across the country.

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Bibliographic Info

Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 1142.

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Date of creation: Aug 2008
Date of revision: Jun 2012
Handle: RePEc:upf:upfgen:1142

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Web page: http://www.econ.upf.edu/

Related research

Keywords: intergovernmental grants; decentralization; economic development;

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Cited by:
  1. Loayza, Norman & Mier y Teran, Alfredo & Rigolini, Jamele, 2013. "Poverty, Inequality, and the Local Natural Resource Curse," IZA Discussion Papers 7226, Institute for the Study of Labor (IZA).

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