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Limits on government spending: evidence of manipulation from Brazilian municipalities

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  • Bernardo P. Schettini
  • Rafael Terra

Abstract

This paper adopts a data-driven approach to detect manipulation in the statements of personnel expenses of Brazilian municipalities used by the Courts of Accounts to verify compliance with the limits determined by the Fiscal Responsibility Law. First, it tests the null hypotheses that the empirical density is continuous at the three legal cut-offs, and shows a large discontinuity at the threshold that brings about the most severe penalties. Next, it investigates whether sorting is attained through fiscal adjustment programmes or by changing accounting practices. The histogram obtained from an alternative data source, which is not so prone to manipulation, is undoubtedly smoother. There is also evidence that public officials overstate deductions from gross spending to avoid the legal sanctions.

Suggested Citation

  • Bernardo P. Schettini & Rafael Terra, 2020. "Limits on government spending: evidence of manipulation from Brazilian municipalities," Applied Economics Letters, Taylor & Francis Journals, vol. 27(14), pages 1200-1205, July.
    • Handle: RePEc:taf:apeclt:v:27:y:2020:i:14:p:1200-1205
    DOI: 10.1080/13504851.2019.1676375
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