IDEAS home Printed from https://ideas.repec.org/p/wbk/wbrwps/2121.html
   My bibliography  Save this paper

Fiscal management in federal democracies : Argentina and Brazil

Author

Listed:
  • Dillinger,William R.
  • Webb,Steven Benjamin

Abstract

In shifting to decentralized public finances, a country's central government faces certain fiscal management problems. First, during and soon after the transition, unless it reduces pending or increases its own tax resources, the central government tends to have higher deficits as it shifts fiscal resources to sub-national governments through transfers, revenue sharing, or delegation of tax bases. Reducing spending is hard, not only because cuts are always hard, but because sub-national governments might not take on expected tasks, leaving the central government with a legal or political obligation to continue spending for certain services. Second, after decentralization, the local or state government faces popular pressure to spend more and tax less, creating the tendency to run deficits. This tendency can be a problem if sub-national governments and their creditors expect or rely on bailouts by the central government. Econometric evidence from 32 large industrial and developing countries indicates that higher sub-national spending and deficits lead to greater national deficits. The authors investigate how, and how successfully, Argentina and Brazil dealt with these problems in the 1990s. In both countries, sub-national governments account for about half of public spending and are vigorous democracies in most (especially the largest) jurisdictions. The return to democracy in the 1980s revived and strengthened long-standing federal practices while weakening macroeconomic performance, resulting in unsustainable fiscal deficits, high inflation, sometimes hyperinflation, and low or negative growth. Occasional stabilization plans failed within a few years. Then Argentina (in 1991) and Brazil (in 1994) introduced successful stabilization plans. National issues were important in preventing and then bringing about macroeconomic stabilization, but so were intergovernmental fiscal relations and the fiscal management of sub-national governments. State deficits and federal transfers were often out of control in the 1980s, contributing to national macroeconomic problems. Stabilization programs in the 1990s needed to establish control, and self-control, over sub-national spending and borrowing.

Suggested Citation

  • Dillinger,William R. & Webb,Steven Benjamin, 1999. "Fiscal management in federal democracies : Argentina and Brazil," Policy Research Working Paper Series 2121, The World Bank.
  • Handle: RePEc:wbk:wbrwps:2121
    as

    Download full text from publisher

    File URL: http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2015/08/13/090224b082b05910/1_0/Rendered/PDF/Fiscal0managem0Argentina0and0Brazil.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Mark P. Jones & Pablo Sanguinetti & Mariano Tommasi, 1999. "Politics, Institutions, and Public-Sector Spending in the Argentine Provinces," NBER Chapters, in: Fiscal Institutions and Fiscal Performance, pages 135-150, National Bureau of Economic Research, Inc.
    2. F. Fornasari & Steve B. Webb & Heng-Fu Zou, 1998. "Decentralized Spending and Central Government Deficits: International Evidence," CEMA Working Papers 508, China Economics and Management Academy, Central University of Finance and Economics.
    3. Wildasin, David E., 1998. "Fiscal aspect of evolving federations : issues for policy and research," Policy Research Working Paper Series 1884, The World Bank.
    4. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64, pages 416-416.
    5. Celina Souza, 1996. "Redemocratization and Decentralization in Brazil: The Strength of the Member States," Development and Change, International Institute of Social Studies, vol. 27(3), pages 529-555, July.
    6. Weingast, Barry R, 1995. "The Economic Role of Political Institutions: Market-Preserving Federalism and Economic Development," Journal of Law, Economics, and Organization, Oxford University Press, vol. 11(1), pages 1-31, April.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Dillinger, William & Webb, Steven B., 1999. "Decentralization and fiscal management in Colombia," Policy Research Working Paper Series 2122, The World Bank.
    2. Chenggang Xu, 2011. "The Fundamental Institutions of China's Reforms and Development," Journal of Economic Literature, American Economic Association, vol. 49(4), pages 1076-1151, December.
    3. Septimiu-Rares SZABO, 2017. "The Empirical Relationship Between Fiscal Decentralization And Economic Growth: A Review Of Variables, Models And Results," Management Research and Practice, Research Centre in Public Administration and Public Services, Bucharest, Romania, vol. 9(2), pages 47-66, June.
    4. Kessing, Sebastian G. & Konrad, Kai A. & Kotsogiannis, Christos, 2006. "Federal tax autonomy and the limits of cooperation," Journal of Urban Economics, Elsevier, vol. 59(2), pages 317-329, March.
    5. Martinez-Vazquez, Jorge & McNab, Robert M., 2003. "Fiscal Decentralization and Economic Growth," World Development, Elsevier, vol. 31(9), pages 1597-1616, September.
    6. Robert P. Inman, 2008. "Federalism's Values and the Value of Federalism," NBER Working Papers 13735, National Bureau of Economic Research, Inc.
    7. Melle Marco C., 2014. "Eine europäische Bemessungsgrundlage für die Körperschaftsteuer? Konzeption und ordnungsökonomische Analyse / Conceptual design and constitutional economics analysis of a European tax base for corpora," ORDO. Jahrbuch für die Ordnung von Wirtschaft und Gesellschaft, De Gruyter, vol. 65(1), pages 133-156, January.
    8. Roberto Ezcurra & Andrés Rodríguez-Pose, 2017. "Does ethnic segregation matter for spatial inequality?," Journal of Economic Geography, Oxford University Press, vol. 17(6), pages 1149-1178.
    9. Anisah Alfada, 2019. "Does Fiscal Decentralization Encourage Corruption in Local Governments? Evidence from Indonesia," Journal of Risk and Financial Management, MDPI, Open Access Journal, vol. 12(3), pages 1-14, July.
    10. Septimiu-Rare? SZABO, 2013. "Decentralisation In The Context Of Multi-Level Governance: Study Case - Romania," Proceedings of Administration and Public Management International Conference, Research Centre in Public Administration and Public Services, Bucharest, Romania, vol. 9(1), pages 92-103, June.
    11. Andrew T. Young, 2021. "The political economy of feudalism in medieval Europe," Constitutional Political Economy, Springer, vol. 32(1), pages 127-143, March.
    12. Zhu, Z. & Krug, B., 2005. "Is China a Leviathan?," ERIM Report Series Research in Management ERS-2005-087-ORG, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
    13. Thushyanthan Baskaran & Lars P. Feld & Jan Schnellenbach, 2016. "Fiscal Federalism, Decentralization, And Economic Growth: A Meta-Analysis," Economic Inquiry, Western Economic Association International, vol. 54(3), pages 1445-1463, July.
    14. Beata Guziejewska, 2008. "Efektywność finansów samorządu terytorialnego," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 5-6, pages 71-89.
    15. Sergei Guriev & Evgeny Yakovlev & Ekaterina Zhuravskaya, 2007. "Inter-Regional Trade and Lobbying," Working Papers w0100, New Economic School (NES).
    16. Raúl A Ponce-Rodríguez & Charles R Hankla & Jorge Martinez-Vazquez & Eunice Heredia-Ortiz, 2018. "Rethinking the Political Economy of Decentralization: How Elections and Parties Shape the Provision of Local Public Goods," Publius: The Journal of Federalism, Oxford University Press, vol. 48(4), pages 523-558.
    17. Che, Jiahua & Chung, Kim-Sau & Lu, Yang K., 2017. "Decentralization and political career concerns," Journal of Public Economics, Elsevier, vol. 145(C), pages 201-210.
    18. Lars P. Feld, 2006. "Regulatory Competition and Federalism in Switzerland: Diffusion by Horizontal and Vertical Interaction," CREMA Working Paper Series 2006-22, Center for Research in Economics, Management and the Arts (CREMA).
    19. T. Randolph Beard & Richard Alan Seals Jr. & Michael L. Stern, 2014. "Security and Government Credibility," Auburn Economics Working Paper Series auwp2014-07, Department of Economics, Auburn University.
    20. Lars Feld, 2014. "James Buchanan’s theory of federalism: from fiscal equity to the ideal political order," Constitutional Political Economy, Springer, vol. 25(3), pages 231-252, September.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:2121. 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: . General contact details of provider: https://edirc.repec.org/data/dvewbus.html .

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Roula I. Yazigi (email available below). General contact details of provider: https://edirc.repec.org/data/dvewbus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.