Endowments, fiscal federalism and the cost of capital for states: evidence from Brazil, 1891–1930
There is a large literature that aims to explain what determines country risk (defined as the difference between the yield of a sovereign's bonds and the risk free rate). In this article, we contribute to the discussion by arguing that an important explanatory factor is the impact that commodities have on the capacity to pay. We use a newly created database with state-level fiscal and risk premium data (between 1891 and 1930) to show that Brazilian states with natural endowments that allowed them to export commodities that were in high demand (e.g. rubber and coffee) ended up having higher revenues per capita and lower cost of capital. We also explain that the variation in revenues per capita was both a product of the variation in natural endowments (i.e. the fact that states cannot produce any commodity they want) and a commodity boom that had asymmetric effects among states. These two effects generated variation in revenues per capita at the state level thanks to the extreme form of fiscal decentralisation that the Brazilian government adopted in the constitution of 1891, which gave states the sole right to tax exports. We also run instrumental variable estimates using indices of export prices for each state. These estimates confirm our findings that states with commodities that had higher price increases had lower risk premia.
Volume (Year): 17 (2010)
Issue (Month): 01 (April)
|Contact details of provider:|| Postal: Cambridge University Press, UPH, Shaftesbury Road, Cambridge CB2 8BS UK|
Web page: http://journals.cambridge.org/jid_FHR
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- William Easterly & Ross Levine, 2002.
"Tropics, Germs, and Crops: How Endowments Influence Economic Development,"
NBER Working Papers
9106, National Bureau of Economic Research, Inc.
- Easterly, William & Levine, Ross, 2003. "Tropics, germs, and crops: how endowments influence economic development," Journal of Monetary Economics, Elsevier, vol. 50(1), pages 3-39, January.
- William Easterly & Ross Levine, 2002. "Tropics, Germs, and Crops: How Endowments Influence Economic Development," Working Papers 15, Center for Global Development.
- Hugh Rockoff & Michael D. Bordo, 1996.
"The Gold Standard as a "Good Housekeeping Seal of Approval","
Departmental Working Papers
199528, Rutgers University, Department of Economics.
- Bordo, Michael D. & Rockoff, Hugh, 1996. "The Gold Standard as a “Good Housekeeping Seal of Approval”," The Journal of Economic History, Cambridge University Press, vol. 56(02), pages 389-428, June.
- Michael D. Bordo, 1995. "The Gold Standard as a `Good Housekeeping Seal of Approval'," NBER Working Papers 5340, National Bureau of Economic Research, Inc.
- Yingyi Qian & Barry R. Weingast, 1997.
"Federalism as a Commitment to Reserving Market Incentives,"
Journal of Economic Perspectives,
American Economic Association, vol. 11(4), pages 83-92, Fall.
- Yingyi Qian & Barry R. Weingast, 1997. "Federalism as a Commitment to Preserving Market Incentives," Working Papers 97042, Stanford University, Department of Economics.
- North, Douglass C. & Weingast, Barry R., 1989. "Constitutions and Commitment: The Evolution of Institutions Governing Public Choice in Seventeenth-Century England," The Journal of Economic History, Cambridge University Press, vol. 49(04), pages 803-832, December.
- Nathan Sussman & Yishay Yafeh, 1998. "Institutions, Reforms, and Country Risk: Lessons from Japanese Government Debt in the Meiji Period," CIRJE F-Series CIRJE-F-20, CIRJE, Faculty of Economics, University of Tokyo.
- Joana Naritomi & Rodrigo R. Soares & Juliano J. Assunção, 2007. "Rent Seeking and the Unveiling of 'De Facto' Institutions: Development and Colonial Heritage within Brazil," NBER Working Papers 13545, National Bureau of Economic Research, Inc.
When requesting a correction, please mention this item's handle: RePEc:cup:fihrev:v:17:y:2010:i:01:p:13-50_00. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Keith Waters)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.