Abstract

This article examines the political economy of public resources distribution in Brazil’s federal system in 1985-2004. We propose an empirical exercise to analyze how the country’s federal governments deal with the tradeoff between the provision of material wellbeing to sub-national governments (the states in our study) and the pursuit of political support from the latter. To identify the determinants of the transfer of resources from the federal government to the states, a set of economic, political, and institutional variables is econometrically tested. Based upon instrumental variables estimation for panel-data models, our estimates indicate that in Brazil the pursuit of political goals prevails over social equity and economic efficiency criteria: higher levels of per capita transfers are associated with the political makeup of governing coalitions, while larger investments in infrastructure and development by the states are associated with a lower amount of per capita resources transferred to sub-national governments. Our findings also suggest a trend toward the maintenance of interregional inequalities in Brazil, and show the relevance of fiscal discipline laws in discouraging the use of the administrative apparatus for electioneering.

JEL Classification: H7; H77; P16; P35.