Politics and Public Banks: BNDES Loans to Local Governments in Brazil

Guilherme Paiva Pinto, Mauricio Bugarin and Rodrigo Schneider

No 120/2025, Economics and Politics Working Paper Series from Economics and Politics Research Group (EPRG), University of Brasília

Abstract: This study advances a quantitative political economy analysis of development banking within federative systems, focusing on Brazil’s National Bank for Economic and Social Development (BNDES). Moving beyond traditional fiscal transfer models, we investigate the mechanisms through which federal credit operations are allocated to municipal governments, emphasizing the political incentives that influ ence these disbursements. We adapt the Strategic Partisan Transfers Hypothesis (SPTH) to the development banking context, formalizing the interaction between federal, state, and local political alignments within Brazil’s regulatory structure. Using an extensive panel dataset and a Regression Discontinuity Design (RDD), we provide empirical evidence that double-aligned municipalities—those aligned with the president’s party but governed by an opposition-aligned state—have a higher probability of receiving federal loans. The RDD design, by leveraging quasi-random variation in close mayoral elections, addresses the limitations of panel models and corrects their tendency to underestimate the true causal effect of mayor-president alignment, particularly in the absence of state-level alignment. Our empirical strategy incorporates detailed controls reflecting the institutional decision-making processes governing municipal access to credit, ensuring that our findings account for both political and bureaucratic determinants of development finance distribution.

Keywords: development banks; Political economy; political economy; intergovernmental transfers; Brazil; regression discontinuity design; partisan alignment (search for similar items in EconPapers)
JEL-codes: D72 G21 H77 H81 (search for similar items in EconPapers)
Date: 2025-06-26
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Persistent link: https://EconPapers.repec.org/RePEc:gvn:eprgwp:1202025

DOI: 10.5281/zenodo.23541645

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