Should voters be afraid of hard budget constraint legislation? Fiscal responsibility law in Brazilian municipalities

Resumo

This manuscript demonstrates that voters have nothing to be afraid of when new hard budget constraint legislation is implemented. Our claim is that this kind of legislation reduces the asymmetry of information between voters and incumbents over the budget and, as a consequence, the latter have incentives to increase the supply of public goods. As a nationwide institutional innovation, the Fiscal Responsibility Law (FRL) is exogenous to all municipalities; therefore, there is no self-selection bias in its implementation. We show that public goods expenditure increases after the FRL. Second, this increase occurs in municipalities located in the country’s poorest region. Third, our findings can be extended to the supply of public goods because the higher the expenditure with health and education, the greater the probability of incumbents being re-elected. Finally, there exists a 'de facto' higher supply of public goods in education (number of per capita classrooms) after the FRL.

Ficha do documento

Tipo

Estudo

Ano

2010

Instituição

Fundação Getulio Vargas

Fonte

Repositório da FGV

Idioma

Inglês

Acesso

Acesso aberto

Identificador

oai:repositorio.fgv.br:10438/6862

Temas

EconomiaFinanças Públicas

Palavras-chave

Institutional shockSupply of public goodsHard budget constraintFiscal responsibility lawEconomiaOrçamentoEleições locaisBrasil. [Lei de responsabilidade fiscal (2000)]