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The new fiscal federalism in Brazil

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  • Shah, Anwar

Abstract

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

    as
    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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