Responsabilidade fiscal, a atuação do Poder Judiciário e o comportamento estratégico dos governantes

Recent trends in Brazilian subnational governments' policy show significant increases in civil servants' wages, most especially by the end of unpopular governors' terms. This stylized fact suggests that the normative framework designed to control public expenditure has not been effective in fostering responsible fiscal policy. The present paper analyses the incentives for fiscal irresponsibility engendered by the current interpretation held by Brazilian Supreme Court regarding a law that bans expenditure that has not been previously planned. The present flexible interpretation allows for unpopular incumbents to be fiscally irresponsible at the end of their term, in order to generate future deficits, to jeopardize the following incumbent and to maximize his own chances of returning to office in future elections. Using a theoretical model, corroborated by quantitative evidence of the Federal District government, we show that the Judiciary can either cause fiscal instability, by stimulating irresponsible behavior of the governor or, conversely, the Judiciary can effectively contribute to curb the opportunist behavior of the governor.