Do mayors and presidents in allied parties influence the values ​​of party transfers?

Responsible researcher: Eduarda Miller de Figueiredo

Article title: STRATEGIC PARTISAN TRANSFERS IN A FISCAL FEDERATION: EVIDENCE FROM A NEW BRAZILIAN DATABASE

Article authors: Mauricio Bugarin and Fernanda Marciniuk

Location of intervention : Brazil

Sector : Economic Policy and Governance

Type of intervention : Effects of financial transfers

Variable of main interest : Total value of discretionary fiscal transfers from the federal government to each Brazilian municipality

Assessment method : Others

Policy Problem

Intergovernmental fiscal transfers are an important instrument within a fiscal federation, as their objectives are to reduce fiscal imbalances between jurisdictions, resolve externalities related to spillovers , improve the overall tax system and support local macroeconomic stabilization. In this way, ensuring that all citizens have efficient access to basic standards of provision of public goods and services.

core voter view suggests that a candidate, who is risk averse, will make higher transfers to jurisdictions where he has strong political support (Cox and McCubbins, 1986). In the view of the undecided voter , the candidate will propose to benefit jurisdictions where there is a relative number of undecided voters, as they would be the most sensitive to the benefits of these transfers (Lindbeck and Weibull, 1987).

From the perspective of the central voter, the hypothesis called Traditional Party Transfer Hypothesis – TPTH [1] , which is the measurement of the political support of the municipality based on the fact that its mayor belongs to the same party as his “superior” (Governor of the State or President), this way the municipality would receive more intergovernmental transfers.

Assessment Context

For Brazil, the literature has evidence that a municipality receives significantly more discretionary transfers from the state government when the mayor belongs to the same party as the governor or president (Ferreira and Bugarin, 2005; Ferreira and Bugarin, 2007).

According to Garofalo (2015), the federal government will send more transfers to states that are politically aligned with its government than to those that are not aligned. Thus, the president forwards it to the state government, which is politically aligned with his government, and delegates the distribution of transfers within the state to the governor. There is also the Strategic Party Transfer Hypothesis - SPTH [2] which consists of the president directing transfers to municipal governments where these transfers will be more advantageous, that is, where the aligned municipality belongs to a state that is not politically aligned.

Policy Details

Transfers are categorized into mandatory and discretionary. In which, mandatory transfers are regulated, either by the Federal Constitution for federative entities (States and Municipalities), or by specific legislation made for members of the federation and private non-profit organizations. Discretionary ones are classified as follows:

• * For civil society organizations: for non-profit civil society organizations in the form of a subsidy to fulfill public interest objectives.
• * Voluntary: direct resources to federative entities in the form of a cooperation grant, support or financial assistance.
• * By delegation: direct resources to federative entities or public consortia aiming to implement a project or public actions under the exclusive responsibility of the recipients.
• * Specific: sending direct resources in specific cases in which the beneficiary is not necessary to comply with tax requirements, generally related to government programs.

Methodology Details

In 2012, with the Brazilian Access to Information Law, government information began to have open access, with information available via the internet from public servants at different levels of government. Thus, the authors aggregated all contractual data by municipality and by year, forming an accurate database on federal transfers to Brazilian municipalities.

The main dependent variable of this research is the total value of discretionary fiscal transfers from the federal government to each Brazilian municipality from 1997 to 2012, in which the average value was around R$7.24 billion. The following were used as control variables: mandatory transfers, local taxes, PT's ideological bias, PSDB's ideological bias, municipal election year, presidential election year, socioeconomic and demographic variables. In addition to the party identification variables, which were classified into the categories: mayor-president-only (when only the governor belongs to another party), mayor-governor-president (all three belong to the same party) and mayor-president coalition (mayor participates in a coalition that supports the president).

Given the nature of the data, fixed and random effects panel models were used to estimate possible effects.

Results

The results demonstrate that, ceteris paribus , if the mayor of the municipality belongs to the same party as the president then, on average, the municipality received in 2012 almost 30 reais (more than US$15) per capita above the value of a municipality whose mayor is from a different party than the president. Therefore, the estimated average annual benefit for a municipality to have a mayor from the same party as the president, during the period 1997-2012, is approximately 12.14 dollars per citizen. This result corroborates the hypothesis of strategic transfers (SPTH).

However, the result when the three heads of executive powers are from the same party was insignificant. That is, there is no statistically distinguishable behavior in federal transfers when states and municipalities are aligned with the president's party.

Another result found refers to the hypothesis of the Brazilian political cycle. In other words, discretionary transfers increase during election years. Thus, there is an average increase in per capita discretionary transfers of about US$45 in presidential election years and about US$30 in municipal election years.

Therefore, in general terms, the research corroborated the hypothesis of party transfers from the federal government to the municipal government, when the mayor and president are from the same party, but the state governor does not belong to the same party.

Public Policy Lessons

The study demonstrates the importance of the need for better regulation of discretionary transfers, aiming to avoid the negative effects possibly caused by strategic party transfers.

Reference

BUGARIN, Mauricio; MARCINIUK, Fernanda. Strategic partisan transfers in a fiscal federation: Evidence from a new Brazilian database. Journal of Applied Economics, vol. 20, no. 2, p. 211-239, 2017.

[1] Traditional Partisan Transfers Hypothesis.

[2] Strategic Partisan Transfer Hypothesis.