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Financing Local Development: Quasi-Experimental Evidence from Municipalities in Brazil, 1980-1991

  • Stephan Litschig
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    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 (munic�pio) 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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    File URL: http://research.barcelonagse.eu/tmp/working_papers/510.pdf
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    Paper provided by Barcelona Graduate School of Economics in its series Working Papers with number 510.

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    Date of creation: Dec 2011
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    Handle: RePEc:bge:wpaper:510
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    1. Caselli, Francesco & Michaels, Guy, 2009. "Do Oil Windfalls Improve Living Standards? Evidence from Brazil," CEPR Discussion Papers 7579, C.E.P.R. Discussion Papers.
    2. Oriana Bandiera & Andrea Prat & Tommaso Valletti, 2009. "Active and Passive Waste in Government Spending: Evidence from a Policy Experiment," American Economic Review, American Economic Association, vol. 99(4), pages 1278-1308, September.
    3. Fernanda Brollo & Tommaso Nannicini & Roberto Perotti & Guido Tabellini, 2010. "The Political Resource Curse," NBER Working Papers 15705, National Bureau of Economic Research, Inc.
    4. David S. Lee & Thomas Lemieux, 2009. "Regression Discontinuity Designs In Economics," Working Papers 1118, Princeton University, Department of Economics, Industrial Relations Section..
    5. Ferraz, Claudio & Finan, Frederico S., 2007. "Exposing Corrupt Politicians: The Effects of Brazil’s Publicly Released Audits on Electoral Outcomes," IZA Discussion Papers 2836, Institute for the Study of Labor (IZA).
    6. Ritva Reinikka & Jakob Svensson, 2004. "Local Capture: Evidence From a Central Government Transfer Program in Uganda," The Quarterly Journal of Economics, MIT Press, vol. 119(2), pages 678-704, May.
    7. Birdsall, Nancy, 1985. "Public inputs and child schooling in Brazil," Journal of Development Economics, Elsevier, vol. 18(1), pages 67-86.
    8. Lee, David S., 2008. "Randomized experiments from non-random selection in U.S. House elections," Journal of Econometrics, Elsevier, vol. 142(2), pages 675-697, February.
    9. Guido Imbens & Thomas Lemieux, 2007. "Regression Discontinuity Designs: A Guide to Practice," NBER Technical Working Papers 0337, National Bureau of Economic Research, Inc.
    10. Chin, Aimee, 2005. "Can redistributing teachers across schools raise educational attainment? Evidence from Operation Blackboard in India," Journal of Development Economics, Elsevier, vol. 78(2), pages 384-405, December.
    11. Lavy, Victor, 1996. "School supply constraints and children's educational outcomes in rural Ghana," Journal of Development Economics, Elsevier, vol. 51(2), pages 291-314, December.
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