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The new fiscal federalism in Brazil


  • Shah, Anwar


Brazil is a three-tiered federation of 24 states, two federal territories, a federal district, and 4,300 municipalities. In 1989 less than half of all government spending was controlled by the federal government. Brazil's new constitution gave autonomous broad powers to states and municipalities on certain tax and spending functions, with municipalities independent of and coequal to states. This paper reviews and analyzes the intergovernmental fiscal relations in Brazil and finds that: (a) federal and state governments are involved in purely local functions in an uncoordinated fashion; (b) the administration of sales tax by all three levels creates duplication and confusion; (c) administration of the general value-added tax by the state involves unresolved issues about tax crediting on interstate trade; (d) the state and municipal revenue-sharing funds do not distribute revenues fairly and equitably; (e) conditional transfers are arbitrary and driven primarily by political considerations; and (f) revenue-sharing constrains the federal government's ability to fulfill its mandate as a national government and is conducive to fiscal mismanagement. In short, the paper concludes that fiscal arrangements have created a vertical fiscal imbalance. The author presents policy options to resolve these problems.

Suggested Citation

  • Shah, Anwar, 1990. "The new fiscal federalism in Brazil," Policy Research Working Paper Series 557, The World Bank.
  • Handle: RePEc:wbk:wbrwps:557

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    References listed on IDEAS

    1. Anwar M. Chaudry-Shah, 1989. "A Capitalization Approach to Fiscal Incidence at the Local Level," Land Economics, University of Wisconsin Press, vol. 65(4), pages 359-375.
    2. Chaudry-Shah, Anwar, 1988. " Capitalization and the Theory of Local Public Finance: An Interpretive Essay," Journal of Economic Surveys, Wiley Blackwell, vol. 2(3), pages 209-243.
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    Cited by:

    1. Andres Velasco, 1997. "A Model of Endogenous Fiscal Deficits and Delayed Fiscal Reforms," NBER Working Papers 6336, National Bureau of Economic Research, Inc.
    2. David Wildasin, 1996. "Introduction: Fiscal Aspects of Evolving Federations," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 3(2), pages 121-135, May.
    3. Eduardo Haddad & Alexandre A. Porsse & Eduardo P. Ribeiro, 2006. "Modeling Interjurisdictional Tax Competition in a Federal System," ERSA conference papers ersa06p359, European Regional Science Association.
    4. Ter-Minassian, Teresa, 1997. "Financial management of government operations: selected macroeconomic and institutional aspects," Sede de la CEPAL en Santiago (Estudios e Investigaciones) 34330, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    5. Bird, Richard & Wallich, Christine, 1992. "Financing local government in Hungary," Policy Research Working Paper Series 869, The World Bank.
    6. Frederico G. Jayme Jr. & Marco Crocco, 2005. "Política Fiscal, Disponibilidade De Crédito E Financiamento De Políticas Regionais No Brasil (Versão Preliminar Para Discussão)," Working Papers 0016, Universidade Federal do Paraná, Department of Economics.
    7. González Cano, Hugo, 1997. "Situación arancelaria y tributaria del MERCOSUR," Sede de la CEPAL en Santiago (Estudios e Investigaciones) 34337, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    8. Shand, David, 1997. "Budgetary reforms in OECD member countries," Sede de la CEPAL en Santiago (Estudios e Investigaciones) 34334, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    9. Shah, Anwar, 1991. "Perspectives on the design of intergovernmental fiscal relations," Policy Research Working Paper Series 726, The World Bank.
    10. Verônica Orellano & Fabiana Rocha & Enlinson Mattos & Ana Carolina Zoghbi, 2012. "Descentralização Fiscal e Municipalização do Ensino Fundamental: Impactos sobre os Indicadores de Desempenho Educacional," Economia, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics], vol. 13(3a), pages 529-552.
    11. Luiz De Mello, 2002. "Public finance, government spending and economic growth: the case of local governments in Brazil," Applied Economics, Taylor & Francis Journals, vol. 34(15), pages 1871-1883.
    12. Cordón Ezquerro, Teodoro, 1997. "El proceso de armonización fiscal en la Unión Europea," Sede de la CEPAL en Santiago (Estudios e Investigaciones) 34339, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    13. Shah, Anwar, 2005. "A framework for evaluating alternate institutional arrangements for fiscal equalization transfers," Policy Research Working Paper Series 3785, The World Bank.
    14. Velasco, Andres, 2000. "Debts and deficits with fragmented fiscal policymaking," Journal of Public Economics, Elsevier, vol. 76(1), pages 105-125, April.
    15. Anwar Shah, 2006. "Fiscal decentralization and macroeconomic management," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 13(4), pages 437-462, August.
    16. World Bank, 2001. "Brazil - Public Expenditures for Poverty Alleviation in Northeast Brazil : Promoting Growth and Improving Services," World Bank Other Operational Studies 15510, The World Bank.
    17. Shah, Anwar, 2005. "Fiscal decentralization and fiscal performance," Policy Research Working Paper Series 3786, The World Bank.


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