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The new fiscal federalism in Brazil

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  • Shah, Anwar

Abstract

Brazil is a three-tiered federation of 24 states, two federal territories, a federal district, and 4,300 municipalities. In 1989 less than half of all government spending was controlled by the federal government. Brazil's new constitution gave autonomous broad powers to states and municipalities on certain tax and spending functions, with municipalities independent of and coequal to states. This paper reviews and analyzes the intergovernmental fiscal relations in Brazil and finds that: (a) federal and state governments are involved in purely local functions in an uncoordinated fashion; (b) the administration of sales tax by all three levels creates duplication and confusion; (c) administration of the general value-added tax by the state involves unresolved issues about tax crediting on interstate trade; (d) the state and municipal revenue-sharing funds do not distribute revenues fairly and equitably; (e) conditional transfers are arbitrary and driven primarily by political considerations; and (f) revenue-sharing constrains the federal government's ability to fulfill its mandate as a national government and is conducive to fiscal mismanagement. In short, the paper concludes that fiscal arrangements have created a vertical fiscal imbalance. The author presents policy options to resolve these problems.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 557.

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Date of creation: 31 Dec 1990
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Handle: RePEc:wbk:wbrwps:557

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Keywords: National Governance; Public Sector Economics&Finance; Banks&Banking Reform; Municipal Financial Management; Regional Governance;

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References

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  1. Chaudry-Shah, Anwar, 1988. " Capitalization and the Theory of Local Public Finance: An Interpretive Essay," Journal of Economic Surveys, Wiley Blackwell, vol. 2(3), pages 209-43.
  2. Anwar M. Chaudry-Shah, 1989. "A Capitalization Approach to Fiscal Incidence at the Local Level," Land Economics, University of Wisconsin Press, vol. 65(4), pages 359-375.
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Citations

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Cited by:
  1. Alexandre A. Porsse & Eduardo A. Haddad & Eduardo P. Ribeiro, 2006. "Modeling Interjurisdictional Tax Competition In A Federal System," Anais do XXXIV Encontro Nacional de Economia [Proceedings of the 34th Brazilian Economics Meeting] 54, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
  2. Sergey Sinelnikov & Pavel Kadochnikov & Ilya Trunin (ed.), 2006. "Fiscal Federalism in Russia: Soft Budget Constraints of Regional Governments," Books, Gaidar Institute for Economic Policy, edition 1, number 4.
  3. World Bank, 2001. "Brazil - Public Expenditures for Poverty Alleviation in Northeast Brazil : Promoting Growth and Improving Services," World Bank Other Operational Studies 15510, The World Bank.
  4. Shah, Anwar, 2005. "A framework for evaluating alternate institutional arrangements for fiscal equalization transfers," Policy Research Working Paper Series 3785, The World Bank.
  5. Anwar Shah, 2006. "Fiscal decentralization and macroeconomic management," International Tax and Public Finance, Springer, vol. 13(4), pages 437-462, August.
  6. Rafael Gamboa, 1998. "Conditional Transfers to Promote Local Government Participation in Mexico," Economia Mexicana NUEVA EPOCA, , vol. 0(2), pages 189-227, July-Dece.
  7. Bird, Richard & Wallich, Christine, 1992. "Financing local government in Hungary," Policy Research Working Paper Series 869, The World Bank.
  8. Shah, Anwar, 1991. "Perspectives on the design of intergovernmental fiscal relations," Policy Research Working Paper Series 726, The World Bank.
  9. David Wildasin, 1996. "Introduction: Fiscal Aspects of Evolving Federations," International Tax and Public Finance, Springer, vol. 3(2), pages 121-135, May.
  10. Andres Velasco, 1997. "A Model of Endogenous Fiscal Deficits and Delayed Fiscal Reforms," NBER Working Papers 6336, National Bureau of Economic Research, Inc.
  11. Sergey Sinelnikov & Pavel Kadochnikov & Ilya Trunin & Sergey Chetverikov & Marianne Vigneault, 2006. "Fiscal Federalism in Russia: Soft Budget Constraints of Regional Governments," Published Papers 47, Gaidar Institute for Economic Policy, revised 2012.
  12. Frederico G. Jayme Jr. & Marco Crocco, 2005. "Política Fiscal, Disponibilidade De Crédito E Financiamento De Políticas Regionais No Brasil (Versão Preliminar Para Discussão)," Working Papers 0016, Universidade Federal do Paraná, Department of Economics.
  13. Velasco, Andres, 2000. "Debts and deficits with fragmented fiscal policymaking," Journal of Public Economics, Elsevier, vol. 76(1), pages 105-125, April.
  14. Shah, Anwar, 2005. "Fiscal decentralization and fiscal performance," Policy Research Working Paper Series 3786, The World Bank.
  15. Verônica Inês Fernandez Orellano & Verônica Inês Fernandez Orellano & Fabiana Rocha & Enlinson Henrique Carvalho De Mattos & Ana Carolina Pereira Zoghbi, 2011. "Descentralização Fiscal Emunicipalização Do Ensino Fundamental: Impactos Sobre Os Indicadores Dedesempenho Educacional," Anais do XXXVIII Encontro Nacional de Economia [Proceedings of the 38th Brazilian Economics Meeting] 069, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].

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