Pro-cyclical Fiscal Policy in Brazil : Evidence from the States

The empirical literature on budget cyclicality has generally focused more on assessing the degree of pro-cyclicality in federal (central government) revenues and expenditures and less on budget cyclicality at the sub-national level in multi-tiered...

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Bibliographic Details
Main Authors:	Arena, Marco, Revilla, Julio E.
Format:	Policy Research Working Paper
Language:	English
Published:	2012
Subjects:	ACCESS TO CAPITAL ACCESS TO CREDIT AUTONOMY BAILOUTS BALANCE OF PAYMENTS BORROWING BUDGET CONSTRAINT BUDGET CONSTRAINTS BUDGET RIGIDITIES BUSINESS CYCLE BUSINESS CYCLES CAPITAL EXPENDITURE CAPITAL EXPENDITURES CAPITAL FLOWS CAPITAL MARKET CAPITAL MARKETS CAPITAL SPENDING CENTRAL BANK CENTRAL GOVERNMENT CENTRAL GOVERNMENT REVENUES COEFFICIENTS CONSOLIDATION CORRUPTION CREDIT CONSTRAINT CREDIT MARKETS CREDITWORTHINESS CURRENT EXPENDITURES CYCLICAL FISCAL POLICY DEBT CRISES DEBT RESTRUCTURING DEBT STOCK DEBTS DECENTRALIZATION DEFICIT BIAS DEFICITS DEVALUATION DEVELOPING COUNTRIES DEVELOPMENT BANK DISCRETIONARY EXPENDITURES DISCRETIONARY FISCAL POLICY DOMESTIC INTEREST RATES DUMMY VARIABLE ECONOMIC ACTIVITY ECONOMIC CHARACTERISTICS ECONOMIC GROWTH EMERGING ECONOMIES EMERGING MARKETS EMPLOYEE EQUALITY EXPENDITURE EXPENDITURE CATEGORIES EXPENDITURE DATA EXPENDITURE EQUATIONS EXPENDITURES EXTERNAL BALANCES EXTERNALITIES FEDERAL ADMINISTRATIONS FEDERAL COUNTRIES FEDERAL DISTRICT FEDERAL GOVERNMENT DEBT FEDERAL REVENUES FEDERAL SYSTEMS FEDERAL TAX FEDERAL TAXES FEDERAL TRANSFERS FEDERAL TRANSFERS TO STATES FINANCES FINANCIAL DEPTH FINANCIAL MARKETS FISCAL ADJUSTMENT FISCAL ADJUSTMENT PROCESS FISCAL ADJUSTMENTS FISCAL BALANCES FISCAL CONSOLIDATION FISCAL DECENTRALIZATION FISCAL EXPANSION FISCAL FEDERALISM FISCAL IMPULSE FISCAL PERFORMANCE FISCAL POLICIES FISCAL POLICY FISCAL STANCE FISCAL SURPLUSES FISCAL VARIABLES FIXED EFFECTS FOREIGN CAPITAL GOVERNMENT DEBT GOVERNMENT FINANCES GOVERNMENT SPENDING GOVERNOR GROSS DOMESTIC PRODUCT GROSS REVENUE GROSS REVENUES HARD BUDGET CONSTRAINTS INCOME SHOCKS INCOME TAX INDEBTEDNESS INFLATION INTEREST PAYMENTS INTEREST RATE INTERGOVERNMENTAL REVENUE INTERGOVERNMENTAL TRANSFERS INTERNATIONAL BANK INVESTMENT SPENDING LEVEL OF GOVERNMENT LIABILITY LIABILITY MANAGEMENT LIMITED ACCESS LOCAL GOVERNMENTS MACROECONOMIC CONDITIONS MACROECONOMIC INSTABILITY MACROECONOMIC POLICIES MACROECONOMIC POLICY MACROECONOMICS MATCHING GRANTS MONETARY FUND MUNICIPAL GOVERNMENTS MUNICIPALITIES NATIONAL TREASURY NET CURRENT REVENUE PENSIONS PERSONAL INCOME POLICY DISCRETION POLICY FRAMEWORK POLITICAL ECONOMY PRIMARY EXPENDITURE PRIMARY SURPLUS PRIVATE CREDIT PROVINCES PROVINCIAL GOVERNMENT PROVINCIAL REVENUES PUBLIC DEBT PUBLIC GOODS PUBLIC SECTOR PUBLIC SPENDING RECESSIONS REDISTRIBUTION REVENUE CONTRIBUTIONS REVENUE STREAMS REVENUE VARIABLES REVENUE VOLATILITY RISK SHARING SOCIAL SERVICES STATE BUDGET STATE EXPENDITURES STATE FISCAL BEHAVIOR STATE GOVERNMENTS SUB-NATIONAL SUB-NATIONAL DEBT SUB-NATIONAL EXPENDITURES SUB-NATIONAL GOVERNMENT SUB-NATIONAL GOVERNMENTS SUBNATIONAL SUBNATIONAL EXPENDITURES SUBNATIONAL GOVERNMENTS TAX TAX BASE TAX REVENUE TAX REVENUE VOLATILITY TAX REVENUES TOTAL EXPENDITURE TOTAL EXPENDITURES TOTAL HEALTH EXPENDITURES TRANSPARENCY
Online Access:	http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20091202102938 http://hdl.handle.net/10986/4337

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Summary:	The empirical literature on budget cyclicality has generally focused more on assessing the degree of pro-cyclicality in federal (central government) revenues and expenditures and less on budget cyclicality at the sub-national level in multi-tiered systems. This paper attempts to contribute to the literature on budget cyclicality by examining how sub-national fiscal revenues and expenditures are linked to the business cycle in Brazil, particularly after the introduction of the Fiscal Responsibility Law. It explains the degree of pro-cyclicality across Brazilian states, and assesses whether intergovernmental transfers help to stabilize states finances. These issues are addressed using both a time-series and a cross-section dimension at the Brazilian state level for the period 1991-2006. The empirical evidence suggests the existence of a pro-cyclical fiscal policy in Brazil at the state level. However, the introduction of the Fiscal Responsibility Law helped to reduce Brazilian states spending-side pro-cyclicality. For the Brazilian states, the main source of the observed pro-cyclicality is found in the behavior of tax revenues directly collected by the state governments. Intergovernmental transfers (federal transfers to the states) are not associated with changes in gross state product, but they are pro-cyclically aligned with national gross domestic product, which could amplify the pro-cyclical behavior of sub-national expenditures.

Pro-cyclical Fiscal Policy in Brazil : Evidence from the States

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