Fiscal Federalism and Procyclical Spending: The Cases of Argentina and Brazil

Federico Sturzenegger and Rogério L. F. Werneck
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Rogério L. F. Werneck: Departamento de Economia, PUC-Rio

Económica, 2006, vol. LII, issue 1-2, 151-194

Abstract: This paper studies the sources of procyclicality for the spending of subnational governments in Argentina and Brazil. We find that tax sharing schemes explain only a marginal share of the prociclicality of revenues, with most of the prociclicality coming from subnational government’s own resources. This is more so when the prociclicality of each source is measured vis a vis each jurisdiction’s output. Cross jurisdiction evidence supports the claim that procyclicality of spending results from the procyclicality of revenues, through the so called “voracity effect”. The conclusion is that the debate on prociclical subnational spending should focus on improving the tax collection schemes at the local level and not on reforming the tax sharing agreements.

Keywords: Procyclicality of government expenditures & resources; tax sharing schemes; sources of procyclicality; Argentina; Brazil (search for similar items in EconPapers)
JEL-codes: E6 H7 (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (18)

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Persistent link: https://EconPapers.repec.org/RePEc:lap:journl:551

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