Fiscal decentralization and economic performance in Brazil

Abstract

The research aims to investigate the effects of fiscal decentralization on the economic performance of Brazilian States from 1980 to 2014. Over the last decades, many countries have modified their institutional configurations in order to allocate more political power and fiscal autonomy to governments subnational levels. According to Oates (1972), the basic argument in favor of such decentralization is that it improves the efficiency of the public sector and promotes long-term economic development. The phenomenon of fiscal decentralization is characterized by the budget autonomy and own collection of the federated entities, besides the distribution of taxes, government transfers and public expenditures between the Union, States and Municipalities. According to the theory of fiscal federalism, subnational autonomy guarantees efficient allocative outcomes, which may result in higher rates of economic growth (Tiebout (1956), Oates (1972)). Or, according to Brueckner (2006), similarly, more fiscal autonomy may be associated with higher product levels per unit of labor and higher growth rates. To verify the relationship between fiscal decentralization and economic growth, indicators of decentralization and estimated econometric models will be constructed using panel data. It is hoped that decentralization has contributed positively to the economic growth of the Brazilian States. (AU)