Institutional aspects of states and municipal fiscal performance

Marcos Mendes ()

Brazilian Journal of Political Economy, 1999, vol. 19, issue 1, 156-170

Abstract: This paper shows that the rules established to control state and municipal debtin Brazil are inefficient. They cannot prevent the excessive growth of the debt nor to avoidthe approval of loans that have a negative benefit-cost relation. The paper uses theoreticalmodels proposed by Shepsle and Weingast (1981) and Niou and Ordershook (1985), relatedto pork barrel projects, to show that The Federal Senate, responsible for the debt control,does not have enough incentives to restrict the debt. The strategy chosen by the majority ofsenators, trying to maximize the probability of being reelected, results in the approval of allapplications made by states and municipalities that want to raise loans. The paper proposeschanges in the control rules, to make them efficient. JEL Classification: H74; D72.

Keywords: Public expenditure composition; elections (search for similar items in EconPapers)
Date: 1999
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