Demand for local public expenditures: evidence of the effects of fiscal illusion in Brazil
DOI:
https://doi.org/10.1590/0101-416146116jarKeywords:
fiscal illusion, local public spending, intergovernmental transfers, tax structureAbstract
In addition to the complexity and opacity of taxation, the strong reliance of Brazilian municipalities on federal and state transfers increases the chance of fiscal illusion.
Under fiscal illusion, taxpayers tend to underestimate the costs of the goods and
services provided by the government and, thus, to demand them in excess of what
would be demanded in the absence of fiscal illusion. The purpose of this study is
to estimate the effects of fiscal illusion on the demand for local public spending in
Brazil. Based on a median voter model and using data from 2010 for 5249 municipalities, a demand function for local public goods that includes variables to capture fiscal illusion is estimated. The results indicate that fiscal illusion associated to the tax structure and to the fiscal transfers can help to understand the expansion of public spending in Brazil.
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References
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Economics 2 (2):357–91, 1999.
REZENDE, Fernando. A reforma esquecida: orçamento, gestão pública e desenvolvimento. Rio de
Janeiro: Editora FGV, 2013.
Tanzi, V. Government versus Market: The Changing Economic Role of the State, Cambridge: Cambridge
University Press, 2011.
VARSANO, R. et al. Uma análise da carga tributária no Brasil. Brasília: Ipea, 1998.
WAGNER, Richard. Revenue Structure, Fiscal Illusion and Budgetary Choice. Public Choice, No. 25,
pp. 45–61, 1976.
Letters, v. 26, n. 2, p. 169-173, 1988.
AFONSO, José Roberto Rodrigues; SOARES, Julia Morais; DE CASTRO, Kleber Pacheco. Avaliação
da estrutura e do desempenho do sistema tributário brasileiro: Livro branco da tributação
Brasileira. Inter-American Development Bank, 2013.
AFONSO, José Roberto Rodrigues; ARAÚJO, Érika Amorim. A capacidade de gasto dos municípios
brasileiros: arrecadação própria e receita disponível. BNDES, Rio de Janeiro, 2001.
ALESINA, Alberto et al. Redistributive public employment. Journal of Urban Economics, v. 48, n. 2,
p. 219-241, 2000.
BERGSTROM, Theodore C and GOODMAN, Robert P. Private Demands for Public Goods. The
American Economic Review, Vol. 63, No. 3 pp. 280-296, 1973.
BIRD, Richard M. Wagner’s o Law of Expanding State Activity. Public Finance, v. 26, n. 1, p. 1-26, 1971.
BORCHERDING, Thomas E. and DEACON, Robert T. The Demand for the Services of Non-Federal
Governments. The American Economic Review, Vol. 62, No. 5, pp. 891-901, 1972.
BORCHERDING, Thomas E. The causes of government expenditure growth: A survey of the US
evidence. Journal of Public Economics, v. 28, n. 3, p. 359-382, 1985.
BORGE, Lars-Erik; RATTS, Jorn. Income distribution and tax structure: Empirical test of the Meltzer–
Richard hypothesis. European Economic Review, v. 48, n. 4, p. 805-826, 2004.
BUCHANAN, J. and TULLOCK, G. The Calculus of Consent, Ann Arbor, University of Michigan
Press, 1962.
BUCHANAN, James. Public finance in democratic process : fiscal institutions and individual choice.
Chapel Hill : University of North Carolina Press, 1967.
BUCHANAN, James M. and WAGNER, Richard E. Democracy in deficit: The political legacy of Lord
Keynes. New York, 1977.
COSSIO, Fernando Andrés Blanco; CARVALHO, LM. Os efeitos expansivos das transferências intergovernamentais
e transbordamentos espaciais das despesas públicas: evidências para os municípios
brasileiros–1996. Pesquisa e Planejamento Econômico, v. 31, n. 1, p. 31, 2001.
DIAMOND, Jack. A note on the public choice approach to the growth in government expenditure. Public
Finance Review, v. 17, n. 4, p. 445-461, 1989.
DOLLERY, Brian E.; WORTHINGTON, Andrew C. The empirical analysis of fiscal illusion. Journal
of Economic Surveys, v. 10, n. 3, p. 261-297, 1996.
DOLLERY, Brian; WORTHINGTON, Andrew. Fiscal illusion at the local level: an empirical test using
Australian municipal data. Economic Record, v. 75, n. 1, p. 37-48, 1999.
DELL’ANNO, Roberto and MOURÃO, Paulo. Fiscal Illusion around the World: An Analysis Using
the Structural Equation Approach. Public Finance Review, pp. 270-301, 2012.
DOWNS, Anthony. An Economic Theory of Democracy. New York: Harper and Row, 1957.
DOWNS, Anthony. Why the Government Budget is Too Small in a Democracy. World Politics, Vol.
12, No. 4, pp. 541-563, 1960.
GEMMELL, Norman. Wagner’s Law and Musgrave’s Hypotheses. The Growth of the Public Sector.
Edward Elgar, Aldershot, p. 103-20, 1993.
GEMMELL, Norman; MORRISSEY, Oliver; PINAR, Abuzer. Fiscal illusion and the demand for government
expenditures in the UK. European Journal of Political Economy, v. 15, n. 4, p. 687-704, 1999.
GEMMELL, Norman; MORRISSEY, Oliver; PINAR, Abuzer. Fiscal illusion and political accountability:
theory and evidence from two local tax regimes in Britain. Public Choice, v. 110, n. 3-4,
p. 199-224, 2002.
GUEDES, Kelly Pereira; GASPARINI, Carlos Eduardo. Descentralização fiscal e tamanho do governo
no Brasil. Economia Aplicada, v. 11, n. 2, p. 303-323, 2013.
HEYNDELS, Bruno; SMOLDERS, Carine. Tax complexity and fiscal illusion. Public Choice, v. 85,
n. 1-2, p. 127-141, 1995.
LAMARTINA, Serena; ZAGHINI, Andrea. Increasing Public Expenditure: Wagner’s Law in OECD
Countries. German Economic Review, v. 12, n. 2, p. 149-164, 2011.
MATTOS, Enlinson; ROCHA, Fabiana; ARVATE, Paulo. Flypaper effect revisited: evidence for tax collection
efficiency in Brazilian municipalities. Estudos Econômicos, v. 41, n. 2, p. 239-267, 2011.
MELTZER, Allan H.; RICHARD, Scott F. A rational theory of the size of government. Journal of
Political Economy, v.89, n.5, p.914-928, 1981.
MENDES, Marcos. Capture of fiscal transfers: a study of Brazilian local governments. Economia
aplicada, v. 9, n. 3, p. 427-444, 2005.
MENDES, Constantino Cronemberger; SOUSA, Maria da Conceição Sampaio. Estimando a demanda
por serviços públicos nos municípios brasileiros. Revista Brasileira de Economia, v. 60, n. 3, p.
281-296, 2006.
MENEZES, Rafael Terra de; SAIANI, Carlos César Santejo; ZOGHBI, Ana Carolina Pereira. Demanda
mediana por serviços públicos e desempenho eleitoral: evidências do modelo do eleitor mediano
para os municípios brasileiros. Estudos Econômicos, v. 41, n. 1, p. 25-57, 2011.
OATES, Wallace E. On the Nature and Measurement of Fiscal Illusion: A Survey. In Taxation and Fiscal
Federalism: Essays in Honour of Russell Mathews, edited by G. Brennan et al., p. 65–82. Sydney:
Australian National University Press, 1988.
POMMEREHNE, Werner W. and SCHNEIDER, Friedrich. Fiscal illusion, political institutions, and
local public spending. Kyklos, v. 31, n. 3, p. 381-408, 1978.
RODDEN, Jonathan “Reviving Leviathan: Fiscal Federalism and the Growth of Government”. International
Organization 57, Fall 2003, pp. 695–729.
SAKURAI. S. N. ‘Efeitos assimétricos das transferências governamentais sobre os gastos públicos locais:
evidências em painel para os municípios brasileiros’, Pesquisa e Planejamento Econômico,
Vol. 43, No. 2, 2013.
SHELTON, Cameron A. The size and composition of government expenditure. Journal of Public Economics,
v. 91, n. 11, p. 2230-2260, 2007.
SILVA, A. M. A & SIQUEIRA, R. B. Demanda por gasto público no Brasil no período pós-redemocratização:
Testes da lei de Wagner e da hipótese de Mill de ilusão fiscal. Pesquisa e Planejamento
Econômico, n. 43, 2014.
SIQUEIRA, R. B & NOGUEIRA J R. Taxation, inequality, and the illusion of the social contract in
Brazil. World Economics Association Conferences - Is a more inclusive and sustainable development
possible in Brazil? n. 1: 5th May – 20th July, 2014.
STEIN, Ernesto. Fiscal Decentralization and Government Size in Latin America. Journal of Applied
Economics 2 (2):357–91, 1999.
REZENDE, Fernando. A reforma esquecida: orçamento, gestão pública e desenvolvimento. Rio de
Janeiro: Editora FGV, 2013.
Tanzi, V. Government versus Market: The Changing Economic Role of the State, Cambridge: Cambridge
University Press, 2011.
VARSANO, R. et al. Uma análise da carga tributária no Brasil. Brasília: Ipea, 1998.
WAGNER, Richard. Revenue Structure, Fiscal Illusion and Budgetary Choice. Public Choice, No. 25,
pp. 45–61, 1976.
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How to Cite
Araujo, J. M., & Siqueira, R. B. (2016). Demand for local public expenditures: evidence of the effects of fiscal illusion in Brazil. Estudos Econômicos (São Paulo), 46(1), 189-219. https://doi.org/10.1590/0101-416146116jar
