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Tax Me, but Spend Wisely? Sources of Public Finance and Government Accountability

Lucie Gadenne ()

American Economic Journal: Applied Economics, 2017, vol. 9, issue 1, 274-314

Abstract: Existing evidence suggests that extra grant revenues lead to little improvements in public services in developing countries--but would governments spend tax revenues differently? This paper considers a program that invests in the tax capacity of Brazilian municipalities. Using variations in the timing of program uptake, I find that it raises local tax revenues and that the increase in taxes is used to improve both the quantity and quality of municipal education infrastructure. In contrast, increases in grants over which municipalities have the same discretion as taxes have no impact on any measure of local public infrastructure. These results suggest that the way governments are financed matters: governments spend increases in tax revenues more toward expenditures that benefit citizens than increases in grant revenues.

JEL-codes: H71 H75 H76 I21 I22 O15 R51 (search for similar items in EconPapers)
Date: 2017
Note: DOI: 10.1257/app.20150509
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Working Paper: Tax Me, But Spend Wisely? Sources of Public Finance and Government Accountability (2016) Downloads
Working Paper: Tax Me, But Spend Wisely? Sources of Public Finance and Government Accountability (2016) Downloads
Working Paper: Tax Me, But Spend Wisely? Sources of Public Finance and Government Accountability (2016) Downloads
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