Principal investigator: Viviane Pires Ribeiro
Article title: The influence of economic capacity and public revenue generation on human development.
Article authors: Wesley de Almeida Mendes, Marco Aurélio Marques Ferreira, Luiz Antônio Abrantes and Evandro Rodrigues de Faria
Location of the intervention: Brazil
Sample size: Brazilian municipalities
Main theme: Political Economy and Governance
Type of Intervention: Impact of the economic capacity of municipalities and revenue generation on the level of human development in Brazilian municipalities.
Main Variable of Interest: Human development
Evaluation method: Experimental Evaluation (RCT)
Evaluation Context
Human development, according to Mendes et al. (2018), can involve different social dimensions; it is a process of change and interaction between the local economy and the population's quality of life, considering social, political, and cultural conditions. Despite the discussion about human development being a multidimensional process involving variables such as health, education, and nutrition, among others, there are also those who argue that a country's economic capacity is a component of this development.
To promote human development, state coordination is necessary in the formulation and maintenance of social public policies capable of improving the living conditions of the population. Therefore, among the federated entities, the municipality, being closer to the population, has the greatest capacity to verify its demands and establish priorities in addressing various public policies. However, the own revenue of many municipalities is insufficient to meet part of the social demand for public policies, thus creating a great dependence on intergovernmental transfers to meet this demand. In this context, the authors consider the importance of economic growth for human development and seek to identify the structural relationships between economic capacity and profile, own revenue, financial transfers, and human development.
Intervention Details
Mendes et al. (2018) identify the structural relationships between economic capacity and profile, own revenue, financial transfers, and human development. The research was conducted using secondary data, whose dependent variable was provided by the Federation of Industries of the State of Rio de Janeiro (Firjan), and data relating to the municipal budget collected from the National Treasury, from the Brazilian Finance database (Finbra), in addition to GDP, which was collected from the website of the Brazilian Institute of Geography and Statistics (IBGE).
The empirical unit of analysis was the municipalities existing in Brazil during the period from 2007 to 2013. The authors chose this period based on the availability of data for all municipalities from 2006 to 2015, with reliable values presented only for the period from 2007 to 2013. The researchers also considered, within this period, the beginning of a state and federal political cycle, as well as the complete municipal political cycle, encompassing two years prior and one year subsequent, which allowed them to capture the variations caused by the electoral period.
Methodology Details
In order to achieve the proposed objective, Mendes et al. (2018) process the data using a panel data logistic regression statistical model. This panel data methodology consists of analyzing data for different individuals over time. The dependent variable of the model is the Firjan Municipal Development Index (IFDM), an indicator developed by Firjan that encompasses health, education, and income, divided into a scale ranging from 0 to 1; the closer to 1, the better the development. The independent variables are: Gross Domestic Product (GDP) per capita; GDP of Services per capita; GDP of Agriculture per capita; Own revenue per capita from the Urban Property Tax (IPTU); Own revenue per capita from the Tax on Inter Vivos Transfer of Real Estate (ITBI); Own revenue per capita from the Tax on Services of Any Nature (ISSQN); Municipal fees per capita; Per capita transfers of resources transferred by the Union to the municipalities; and per capita transfers of resources transferred by the State to which the municipality belongs.
Results
The results indicate that all variables included in the model are statistically significant at the 1% level. Considering these results, the importance of the GDP of the industrial and agricultural sectors and the volume of intergovernmental transfers as influencers of human development can be seen. Industrial GDP was the most relevant, which can be justified by the increase in technological volume and improvement in the living conditions of the population resulting from industrialization. The positive value of the agricultural sector highlights its historical and economic importance, with high productivity, showing the important role of Brazilian agriculture in the international scenario, in addition to the high technology applied in the production process.
On the other hand, the GDP of services was the only variable applied to the model that showed a negative effect on human development, although its importance cannot be disregarded. This fact can be explained by its presence in all Brazilian municipalities, especially in small ones, which often have poor urban, social, and economic infrastructure and, consequently, concentrate low added value in this economic sector. Regarding own revenues, the ISSQN (Tax on Services of Any Nature) was the most relevant tax, due to its urban base and its relationship with the economic capacity and size of the municipality. Intergovernmental transfers were more relevant, especially those transferred by the Federal Government.
Lessons in Public Policy
How do the economic capacity of municipalities and the formation of revenues from their own tax collection and intergovernmental transfers affect the level of human development in Brazilian municipalities? The results found by Mendes et al. (2018) indicate that the industrial sector is characterized as an aggregator of economic volume and a generator of improved social conditions. Another important sector is agriculture, which has also stood out in promoting human development. In this sense, these sectors demand improvements in the quality of education, health, and infrastructure from the public sector; in return, they offer a greater number of jobs and a higher volume of taxes collected.
Regarding the financial aspect, the authors argue that the generation of public revenue is fundamental for improving human development, with intergovernmental transfers playing a more significant role due to the larger volume of available funds. Many of these transfers have specific purposes, such as transfers from the Unified Health System (SUS) and the Fund for the Maintenance and Development of Basic Education and the Enhancement of Education Professionals (Fundeb), which aim to maintain social programs focused on public health and basic education. However, despite the relevance of resource availability for human development, their proper application is necessary, highlighting the performance of public management, especially in fulfilling its role of generating revenue for investment and improving social conditions.
References
Mendes, W. de A., Ferreira, MAM, Abrantes, LA, & Faria, ER de. (2018). The influence of economic capacity and public revenue formation on human development. Public Administration Magazine, 52 (5), 918-934.
