Human and economic development from the perspective of ICMS and IFDM

a relative efficiency approach in municipalities of Rio Grande do Sul

Abstract

This study analyzes the relative state capacity of municipalities in Rio Grande do Sul in converting economic revenue into human development, based on ICMS per capita and the FIRJAN Municipal Development Index (IFDM). It starts from the hypothesis that high levels of revenue do not, by themselves, guarantee better social conditions, as outcomes depend on the administrative, institutional, and political capacity of local governments to transform resources into well-being. Using a quantitative approach, the most populous municipalities in 25 of the 28 COREDEs were examined through simple linear regression between standardized ICMS per capita and IFDM, with a focus on residuals as a measure of relative state capacity. The results indicate that a large share of the variation in IFDM cannot be explained solely by revenue, but also by factors such as management quality, planning, bureaucratic organization, and institutional coordination. Municipalities such as Lajeado, Erechim, and Ijuí showed performance above expectations, while Guaíba, Bagé, and Pelotas performed below expected levels. The exclusion of outliers, such as Porto Alegre and Santa Cruz do Sul, improved the robustness of the model. The study proposes a comparative and replicable methodology to assess municipal state capacity, reinforcing that development depends not only on available resources but also on governments’ ability to convert them into social outcomes.

Keywords: Per capita ICMS; IFDM; municipal efficiency; human development; public management.