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

  • Marcus Melo
  • Carlos Pereira
  • Saulo Souza

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.

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Paper provided by Inter-American Development Bank, Research Department in its series Research Department Publications with number 4655.

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Date of creation: Feb 2010
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Handle: RePEc:idb:wpaper:4655
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  1. 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.
  2. Lee J. Alston & Bernardo Mueller, 2005. "Pork for Policy: Executive and Legislative Exchange in Brazil," NBER Working Papers 11273, National Bureau of Economic Research, Inc.
  3. Marcela Eslava, 2006. "The Political Economy of Fiscal Policy: Survey," IDB Publications (Working Papers) 40058, Inter-American Development Bank.
  4. Eduardo Lora, 2007. "The State of State Reform in Latin America," World Bank Publications, The World Bank, number 6642.
  5. 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, April.
  6. repec:idb:brikps:59578 is not listed on IDEAS
  7. repec:idb:brikps:40178 is not listed on IDEAS
  8. 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, April.
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