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Institutional aspects of states and municipal fiscal performance

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  • Marcos Mendes

Abstract

This paper shows that the rules established to control state and municipal debtin Brazil are inefficient. They cannot prevent the excessive growth of the debt nor to avoidthe approval of loans that have a negative benefit-cost relation. The paper uses theoreticalmodels proposed by Shepsle and Weingast (1981) and Niou and Ordershook (1985), relatedto pork barrel projects, to show that The Federal Senate, responsible for the debt control,does not have enough incentives to restrict the debt. The strategy chosen by the majority ofsenators, trying to maximize the probability of being reelected, results in the approval of allapplications made by states and municipalities that want to raise loans. The paper proposeschanges in the control rules, to make them efficient. JEL Classification: H74; D72.

Suggested Citation

  • Marcos Mendes, 1999. "Institutional aspects of states and municipal fiscal performance," Brazilian Journal of Political Economy, Center of Political Economy, vol. 19(1), pages 156-170.
    • Handle: RePEc:ekm:repojs:v:19:y:1999:i:1:p:156-170:id:1049
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    File URL: https://centrodeeconomiapolitica.org.br/repojs/index.php/journal/article/view/1049/1034
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    Keywords

    Public expenditure composition; elections;

    JEL classification:

    • H74 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Borrowing
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior

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