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The Political Economy of Fiscal Reform in Brazil: The Rationale for the Suboptimal Equilibrum

Author

Listed:
  • Marcus Melo
  • Carlos Pereira
  • Saulo Souza

Abstract

This project examines fiscal reforms in Brazil since the 1990s, particularly in taxation, budgeting, and fiscal federalism. While recentralizing fiscal authority and massively expanding the extractive capacity of the state, policymakers chose not to revamp an inefficient tax system that has nonetheless proven capable of generating high levels of revenue. In budgeting, the economic crises of the mid-1990s prompted the government to rein in subnational fiscal imbalances but discouraged policymakers from introducing major changes in the tax system. As the executive derives utility from fiscal stability and inflation control because of electoral incentives and credibility gains in international markets, reform initiatives can generate political benefits for incumbent politicians. The paper finally argues that the Achilles’ heel of the sustainability of the Fiscal Responsibility Law is its enforcement technology: the Tribunais de Contas.

Suggested Citation

  • Marcus Melo & Carlos Pereira & Saulo Souza, 2010. "The Political Economy of Fiscal Reform in Brazil: The Rationale for the Suboptimal Equilibrum," Research Department Publications 4655, Inter-American Development Bank, Research Department.
  • Handle: RePEc:idb:wpaper:4655
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    File URL: http://www.iadb.org/research/pub_hits.cfm?pub_id=IDB-WP-117&pub_file_name=pubIDB-WP-117.pdf
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    References listed on IDEAS

    as
    1. Pablo T. Spiller & Ernesto H. Stein & Mariano Tommasi & Carlos Scartascini & Lee J. Alston & Marcus André Melo & Bernardo Mueller & Carlos Pereira & Cristóbal Aninat & John Londregan & Patricio Navia , 2008. "Policymaking in Latin America: How Politics Shapes Policies," IDB Publications (Books), Inter-American Development Bank, number 40178 edited by Ernesto H. Stein & Mariano Tommasi & Pablo T. Spiller & Carlos Scartascini, February.
    2. Arturo Galindo & Carlos Scartascini & J. Mark Payne & Robert Daughters & Alberto Melo & Koldo Echebarría & Eduardo Lora & Gabriel Filc & Alejandro Micco & Alberto E. Chong & Ugo Panizza & Juan Benavid, 2007. "The State of State Reform in Latin America," IDB Publications (Books), Inter-American Development Bank, number 352 edited by Eduardo Lora.
    3. repec:idb:idbbks:329 is not listed on IDEAS
    4. Marcela Eslava, 2006. "The Political Economy of Fiscal Policy: Survey," Research Department Publications 4487, Inter-American Development Bank, Research Department.
    5. Lee J. Alston & Bernardo Mueller, 2006. "Pork for Policy: Executive and Legislative Exchange in Brazil," Journal of Law, Economics, and Organization, Oxford University Press, vol. 22(1), pages 87-114, April.
    6. Arturo Galindo & Carlos Scartascini & J. Mark Payne & Robert Daughters & Alberto Melo & Koldo Echebarría & Eduardo Lora & Gabriel Filc & Alejandro Micco & Alberto E. Chong & Ugo Panizza & Juan Benavid, 2007. "The State of State Reform in Latin America," IDB Publications (Books), Inter-American Development Bank, number 59578 edited by Eduardo Lora, February.
    7. repec:idb:brikps:40178 is not listed on IDEAS
    8. Lee J. Alston & Bernardo Mueller & Marcus André Melo & Carlos Pereira, 2010. "The Political Economy of Productivity in Brazil," IDB Publications (Working Papers) 5338, Inter-American Development Bank.
    9. repec:idb:brikps:59578 is not listed on IDEAS
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    Citations

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    Cited by:

    1. Hallerberg, Mark & Scartascini, Carlos, 2017. "Explaining changes in tax burdens in Latin America: Do politics trump economics?," European Journal of Political Economy, Elsevier, vol. 48(C), pages 162-179.
    2. Cornel Ban, 2013. "Brazil's liberal neo-developmentalism: New paradigm or edited orthodoxy?," Review of International Political Economy, Taylor & Francis Journals, vol. 20(2), pages 298-331, April.
    3. Mark Hallerberg & Carlos Scartascini, 2015. "Explaining Changes in Tax Burdens in Latin America: Does Politics Trump Economics?," IDB Publications (Working Papers) 90997, Inter-American Development Bank.
    4. Aizenman, Joshua, 2012. "The Euro and the global crises: finding the balance between short term stabilization and forward looking reforms," Santa Cruz Department of Economics, Working Paper Series qt8mc1z1wc, Department of Economics, UC Santa Cruz.
    5. Marcus André Melo & Armando Barrientos & André Canuto Coelho, 2014. "Taxation, redistribution and the social contract in Brazil," Global Development Institute Working Paper Series iriba_wp11, GDI, The University of Manchester.
    6. Paulo Arvate & Braz Camargo & Carlos Pereira, 2010. "Fiscal Responsibility and the Supply of Public Goods," Working Papers 06-2010, Universidade de São Paulo, Faculdade de Economia, Administração e Contabilidade de Ribeirão Preto.

    More about this item

    Keywords

    Fiscal responsibility laws; Fiscal federalism; Brazil; Political institutions;

    JEL classification:

    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • H83 - Public Economics - - Miscellaneous Issues - - - Public Administration
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue

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