Is there a relationship between the degree of financial autonomy and investments in education in municipalities?

Responsible researcher: Viviane Pires Ribeiro

Article title: THE RELATIONSHIP BETWEEN GOVERNMENT TRANSFERS, OWN TAX COLLECTION AND THE EDUCATION INDEX OF THE MUNICIPALITIES OF THE STATE OF MINAS GERAIS

Authors of the article: Cleyde Cristina Rodrigues Caetano; Lucimar Antônio Cabral de Ávila; Marcelo Tavares;

Location of intervention: Minas Gerais, Brazil

Sample size: All municipalities in Minas Gerais

Big theme: Education

Variable of main interest: Investments in Education

Assessment method: Others

Assessment Context

The changes provided to Brazilian municipalities with the promulgation of the 1988 Federal Constitution were significant, as they acquired greater independence and financial autonomy in the allocation of their own resources, in the financing and administration of their revenues and in the expansion of municipal powers. According to Caetano et al. (2017), Brazilian municipal units experienced a significant increase in revenues from fiscal transfers from the states and the Union and from resources obtained through their own collection, however, the units began to bear the weight of the responsibility for managing these resources and offer basic public services to the local population. Some legislative changes in the 1990s imposed on municipalities the obligation to act mainly in elementary education and early childhood education, determining a minimum allocation of 25% of tax resources to educational services. In this context, Caetano et al. (2017) verifies the relationship between government transfers, own tax collection and the education index of municipalities in the state of Minas Gerais, based on the hypothesis that a greater availability of financial resources would positively impact the quality of municipal education.

Intervention Details

The study sample covers all municipalities in the state of Minas Gerais, subdivided into 12 mesoregions, from 2009 to 2013. Financial information for each municipal unit was obtained through the Information System on Public Budgets in Education (Siope), operated by the National Education Development Fund (FNDE), from which the Statements of Income and Expenses with Maintenance and Development of Education were collected.

The variables used by the authors are: Percentage of own tax revenue, which expresses the degree of financial autonomy of each municipal entity; Number of inhabitants of municipal units, established based on the 2010 Demographic Census and municipal population estimates sent to the Federal Audit Court; Own tax revenue per capita, ratio between own tax revenue and the number of inhabitants; Fiscal transfer per capita, ratio between Revenue from constitutional and legal transfers and the Number of inhabitants; Percentage representation of municipal GDP; Additional Percentage of Investment in Municipal Education (Pade); Percentage of municipal revenue invested in education; and the Municipal Education Index (Iedu), a municipal indicator made available by Firjan, ranging from 0 to 1, the closer to 1, the greater the municipality's development in terms of education.

Methodology Details

In order to compare the levels of municipal autonomy between the municipalities that make up the mesoregions of the state of Minas Gerais, Caetano et al. (2017) carried out the analysis of variance in randomized blocks, using the percentages of own tax revenues, which demonstrate the level of autonomy of the municipality. Thus, the years 2009, 2010, 2011, 2012 and 2013 were considered blocks. To determine the existence of a linear correlation between the variables, Spearman correlation coefficients were calculated.

Subsequently, with the aim of reducing disparities in municipal characteristics, a grouping was carried out based on estimates of average percentages of own tax revenue, using the k-means cluster analysis method. Finally, to verify the relationship between per capita tax collection, per capita tax transfers, the additional percentage of investment in education and the Firjan index of municipal education, the authors used multiple linear regression.

Results

The results found by the authors infer that the percentages of tax revenues of the municipalities that make up the mesoregions of Minas Gerais present statistical differences, at a significance level of 95%. The same analysis shows that over the period from 2009 to 2013, these percentages were statistically similar. The Scott-Knott test carried out to compare the estimates of average percentages of own tax revenues between the mesoregions shows that the state was divided into three blocks, statistically different from each other, at a significance level of 95%.

The results from the Spearman correlation test between the aforementioned variables infer that there is a positive and considerable relationship, statistically significant at the 1% level, between the percentages of own tax revenues and the percentage representation of municipalities in Minas Gerais in terms of total GDP. . In the analysis of the relationship between the variables Percentage of own tax revenue and Additional percentage of investment in municipal education, it is clear that the municipalities of Minas Gerais exhibit significant Spearman coefficients, at the level of 1%, but the association between the variables exposes negative behavior and low, showing that these municipalities, even with greater autonomy, end up not making greater investments in education than less autonomous municipal units. Spearman's correlation test proved that there is no relationship between financial autonomy, investments and educational indices.

In the search for an answer to the main hypothesis of the work, the authors presented multiple linear regression models for the formatted clusters, characterized by the non-statistical significance of a model (cluster 3) or by the presentation of much lower coefficients of determination, which conferred little predictive capacity in the analysis. Thus, it was evident that the amount of own tax revenue per capita and tax transfers per capita, as well as the additional percentage of investment in education, did not impact the education index designated for the research. According to the researchers, the proximity of the values ​​of municipal education indices can be pointed out as one of the reasons for the impossibility of building empirical models with significant predictive capacity.

Public Policy Lessons

Can it be said that there is a relationship between the degree of financial autonomy and investments in education? In the study carried out by Caetano et al. (2017), the authors statistically proved that there is no relationship between the degree of financial autonomy and investments in education. In other words, the group that brought together small municipalities, considered less autonomous, on average, ends up making greater investments in education. This can be explained, according to the researchers, by the lower demand for students and the fact that smaller cities are not affected by some problems that exist in large municipalities, such as security, transport, basic sanitation, housing, etc. Furthermore, municipalities with greater financial autonomy showed that IPTU and ISS constitute important taxes in the constitution of their own revenue, indicating that municipal governments should implement improvements in the calculation, collection and inspection of these taxes. 

Caetano et al. (2017) emphasize that the fact that an empirical relationship was not found between spending on education and the quality of teaching does not eliminate the importance of financing municipal educational services, as resources may be mismanaged due to a possible inefficiency of the public sector. In this case, municipal administrators must pay more attention to the management of available funds and be concerned with the return and efficiency of the services offered.

References

CAETANO, Cleyde Cristina Rodrigues; ÁVILA, Lucimar Antônio Cabral de; TAVARES, Marcelo. The relationship between government transfers, own tax collection and the education index of municipalities in the state of Minas Gerais. Public Administration Magazine , v. 51, no. 5, p. 897-916, 2017.