THE IMPACT OF CONSTITUTIONAL TRANSFERS ON EXPENSES OF BRAZILIAN MUNICIPALITIES

Abstract

In countries where the government system has a decentralized character observes a strong dependence on resources from the higher authorities of the federation, by the lower spheres of government. In Brazil, this fact is confirmed by the fact that intergovernmental transfers represent, on average, a volume higher than 88% of total revenues. Despite its importance in the composition of revenues of municipal administrations, funding of public system via intergovernmental transfers can lead to losses in municipal management. The main inconvenience than a federal system may suffer through the funding mechanism of the lower spheres of government through constitutional transfers has to incur expenses without commitment to a balanced resource management. In this scenario, the objective of this work is to verify the occurrence of practices consistent with the definition of the flypaper effect. The description of this relationship will give through the technique of Vector Autoregressive model and quantile regressions, in both its versions for panel data. The sample consists of information on the collection, GDP, population, expenditure and current transfers to 5,293 Brazilian municipalities between 1999 and 2009, extracted from the National Treasury and the Brazilian Institute of Geography and Statistics. The results highlight that there were no conditions to confirm the practice of flypaper effect by municipal government in Brazil. Finally, it was found that the effects of transfers on the expenditure of municipalities are not expressed only a general analysis, but for different quantiles of the distribution.