Principal investigator: Eduarda Miller de Figueiredo
Article title: STRATEGIC PARTISAN TRANSFERS IN A FISCAL FEDERATION: EVIDENCE FROM A NEW BRAZILIAN DATABASE
Article authors: Mauricio Bugarin and Fernanda Marciniuk
Location of the intervention: Brazil
SectorEconomic Policy and Governance
Type of interventionEffects of financial transfers
Main variable of interestTotal value of discretionary fiscal transfers from the federal government to each Brazilian municipality.
Assessment method: Others
Policy Problem
Intergovernmental fiscal transfers are an important instrument within a fiscal federation, since their objectives consist of reducing fiscal imbalances between jurisdictions and addressing externalities related to... spillovers of public goods, improving the overall tax system and supporting local macroeconomic stabilization. In this way, ensuring that all citizens have efficient access to basic standards of public goods and services.
the vision of central electorate This suggests that a risk-averse candidate will make higher transfers to jurisdictions where they have strong political support (Cox and McCubbins, 1986). In contrast, from the perspective of... undecided voterThe candidate will propose to benefit jurisdictions where there is a relatively large number of undecided voters, since they would be the most receptive to the benefits of these transfers (Lindbeck and Weibull, 1987).
From the perspective of the central voter, the hypothesis known as the Traditional Party Transfer Hypothesis (TPTH) emerges.[1]This refers to the measurement of a municipality's political support based on whether its mayor belongs to the same party as their "superior" (State Governor or President), thus allowing the municipality to receive more intergovernmental transfers.
Assessment Context
For Brazil, the literature provides evidence that a municipality receives significantly more discretionary transfers from the state government when the mayor belongs to the same party as the governor or the president (Ferreira and Bugarin, 2005; Ferreira and Bugarin, 2007).
According to Garofalo (2015), the federal government will allocate more transfers to states that are politically aligned with its government than to those that are not. Thus, the president sends funds to the state government that is politically aligned with his government and delegates to the governor the distribution of the transfers within the state. There is also the Strategic Hypothesis of Partisan Transfer – SPTH.[2] This involves the president directing transfers to municipal governments where these transfers will be most advantageous, that is, where the aligned municipality belongs to a state that is not politically aligned.
Policy Details
Transfers are categorized as mandatory and discretionary. Mandatory transfers are regulated either by the Federal Constitution for federative entities (States and Municipalities), or by specific legislation for members of the federation and private non-profit organizations. Discretionary transfers are classified as follows:
- * For civil society organizations: for non-profit civil society organizations in the form of a grant to achieve objectives of public interest.
- * Volunteer: direct resources to federative entities in the form of cooperation grants, support, or financial assistance.
- * By delegation: directing resources to federative entities or public consortia for the implementation of public projects or actions under the exclusive responsibility of the recipients.
- * Specific: direct disbursement of funds in specific cases where the beneficiary is not required to meet tax requirements, usually related to government programs.
Methodology Details
In 2012, with the Brazilian Access to Information Law, government information became openly accessible, with information on public servants at different levels of government available via the internet. Thus, the authors aggregated all contractual data by municipality and year, forming a precise database on federal transfers to Brazilian municipalities.
The main dependent variable in this research is the total value of discretionary fiscal transfers from the federal government to each Brazilian municipality from 1997 to 2012, with an average value of approximately R$ 7,24 billion. The following were used as control variables: mandatory transfers, local taxes, ideological bias of the PT (Workers' Party), ideological bias of the PSDB (Brazilian Social Democracy Party), municipal election year, presidential election year, socioeconomic and demographic variables. In addition, variables related to party affiliation were classified into the following categories: mayor-president-only (when only the governor belongs to another party), mayor-governor-president (all three belong to the same party), and mayor-president coalition (the mayor participates in a coalition that supports the president).
Given the nature of the data, fixed-effects and random-effects panel models were used to estimate the possible effects.
Results
The results demonstrate that, other things being equalIf the mayor of a municipality belongs to the same party as the president, then, on average, the municipality received almost 30 reais (more than US$15) per capita more in 2012 than a municipality whose mayor belongs to a different party than the president. Therefore, the estimated average annual benefit for a municipality having a mayor from the same party as the president, during the period 1997-2012, is approximately US$12,14 per citizen. This result corroborates the strategic transfers hypothesis (SPTH).
However, the result when the three heads of the executive branch are from the same party was insignificant. That is, there is no statistically distinguishable behavior in federal transfers when states and municipalities are aligned with the president's party.
Another finding relates to the hypothesis of the Brazilian political cycle. That is, discretionary transfers increase during election years. Thus, there is an average increase in per capita discretionary transfers of approximately US$45 in presidential election years and approximately US$30 in municipal election years.
Therefore, broadly speaking, the research corroborated the hypothesis of party transfers from the federal government to the municipal government when the mayor and president belong to the same party, but the state governor does not.
Lessons in Public Policy
The study demonstrates the importance of better regulating discretionary transfers, aiming to avoid the negative effects that strategic party transfers may cause.
Reference
BUGARIN, Mauricio; MARCINIUK, Fernanda. Strategic partisan transfers in a fiscal federation: Evidence from a new Brazilian database. Journal of Applied Economics, vol. 20, no. 2, p. 211-239, 2017.
[1] Traditional Partisan Transfers Hypothesis.
[2] Strategic Partisan Transfer Hypothesis.
