Limits on government spending: evidence of manipulation from Brazilian municipalities

Bernardo P. Schettini and Rafael Terra

Applied Economics Letters, 2020, vol. 27, issue 14, 1200-1205

Abstract: This paper adopts a data-driven approach to detect manipulation in the statements of personnel expenses of Brazilian municipalities used by the Courts of Accounts to verify compliance with the limits determined by the Fiscal Responsibility Law. First, it tests the null hypotheses that the empirical density is continuous at the three legal cut-offs, and shows a large discontinuity at the threshold that brings about the most severe penalties. Next, it investigates whether sorting is attained through fiscal adjustment programmes or by changing accounting practices. The histogram obtained from an alternative data source, which is not so prone to manipulation, is undoubtedly smoother. There is also evidence that public officials overstate deductions from gross spending to avoid the legal sanctions.

Date: 2020
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DOI: 10.1080/13504851.2019.1676375

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