What is the influence of economic capacity and the formation of public revenues on human development?

Responsible researcher: Viviane Pires Ribeiro

Article title: THE INFLUENCE OF ECONOMIC CAPACITY AND PUBLIC REVENUE FORMATION ON HUMAN DEVELOPMENT

Authors of the article: Wesley de Almeida Mendes, Marco Aurélio Marques Ferreira, Luiz Antônio Abrantes and Evandro Rodrigues de Faria

Location of intervention: Brazil

Sample size: Brazilian municipalities

Major theme: Political Economy and Governance

Type of Intervention: Impact of the economic capacity of municipalities and the formation of revenues on the level of human development of Brazilian municipalities

Variable of Main Interest: Human development

Evaluation method: Experimental Evaluation (RCT)

Assessment Context

Human development, according to Mendes et al. (2018), can involve different social dimensions, it is a process of changes and interaction of the local economy and the population's quality of life, considering social, political and cultural conditions. Despite the discussion about the fact that human development consists of a multidimensional process, which involves variables such as health, education, nutrition, among others, there are also those who argue that the country's economic capacity is a component in this development.

To promote human development, coordination between the State is necessary in the formulation and maintenance of public social policies capable of improving the living conditions of the population. Therefore, among the federated entities, the municipality, as it is closest to the population, is the one with the greatest capacity to verify their demands and establish priorities in meeting various public policies. However, many municipalities' own revenue is insufficient to meet part of the social demand for public policies, thus creating great dependence on intergovernmental transfers to meet this demand. In this context, the authors consider the importance of economic growth for human development and seek to identify the structural relationships between economic capacity and profile, own revenue, financial transfers and human development.

Intervention Details

Mendes et al. (2018) identify the structural relationships between economic capacity and profile, own revenue, financial transfers and human development. The research was conducted using secondary data, whose dependent variable was made available by the Federation of Industries of the State of Rio de Janeiro (Firjan), and data relating to the municipal budget collected at the National Treasury, from the Brazilian Finance database ( Finbra), in addition to GDP, which was collected on the website of the Brazilian Institute of Geography and Statistics (IBGE).

The empirical unit of analysis was the municipalities existing in Brazil from 2007 to 2013. The authors chose the period according to the availability of data for all municipalities from 2006 to 2015, with reliable values ​​being presented only for the period from 2007 to 2013. The researchers also considered, in this period, the contemplation of the beginning of a state and federal political cycle, as well as the complete municipal political cycle, covering two previous years and one year later, which made it possible to capture the variations caused by the electoral period.

Methodology Details

In order to achieve the proposed objective, Mendes et al. (2018) process the data using the statistical model of panel data logistic regression. This panel data methodology consists of analyzing data for different individuals over time. The dependent variable of the model is the Firjan Municipal Development Index (IFDM), an indicator prepared by Firjan that covers health, education and income, being divided into a scale that varies from 0 to 1; the closer to 1, the better the development. The independent variables are: Industrial Gross Domestic Product (GDP) per capita; Services GDP per capita; Agricultural GDP per capita; Own per capita collection of Urban Property and Territorial Tax (IPTU); Own per capita collection of the Tax on the Transfer of Inter-vivos Real Estate Assets (ITBI); Own per capita collection of Tax on Services of Any Nature (ISSQN); Per capita municipal taxes; Per capita transfers of resources transferred by the Union to municipalities; and Per capita transfers of resources transferred by the State to which the municipality belongs.

Results

The results found indicate that all variables included in the model are statistically significant at the 1% level. Considering the results, one can see the importance of the GDP of the industrial and agricultural sectors and the volume of intergovernmental transfers as influencers of human development. Industrial GDP was the most relevant, which can be justified by the increase in technological volume and improvement in the population's living conditions resulting from industrialization. The positive value of the agricultural sector highlights its historical and economic importance, with high productivity, showing the important role of Brazilian agriculture on the international scene, in addition to the high technology applied in the production process.

On the other hand, services GDP was the only variable applied to the model that had a negative effect on human development, although its importance cannot be ignored. The fact can be explained by its presence in all Brazilian municipalities, especially in small ones, which in most cases have low urban, social and economic infrastructure and, consequently, concentrate low added value in this economic sector. In relation to own revenues, the ISSQN was the most relevant tax, due to its urban base and its relationship with the economic capacity and size of the municipality. Intergovernmental transfers were more relevant, with emphasis on those transferred by the Union.

Public Policy Lessons

How do the economic capacity of municipalities and the formation of revenue from their own collection and intergovernmental transfers affect the level of human development in Brazilian municipalities? The results found by Mendes et al. (2018) indicate that the industrial sector is characterized as an aggregator of economic volume and a generator of improved social conditions. Another important sector is agriculture, which also gained prominence in promoting human development. In this sense, these sectors require the public sector to improve the quality of education, health and infrastructure; on the other hand, they offer a greater number of jobs and a greater volume of taxes collected.

Regarding the financial aspect, the authors argue that the formation of public revenue is fundamental for improving human development, whose intergovernmental transfers play a more relevant role due to the greater financial volume available. Many of these transfers have specific destinations, such as transfers from the Unified Health System (SUS) and the Fund for Maintenance and Development of Basic Education and Valorization of Education Professionals (Fundeb), which aim to maintain social programs aimed at public health. and basic education. However, despite the availability of resources being relevant to human development, their good applicability is necessary, highlighting the performance of public management, especially in fulfilling its role of generating revenue for investment and improving social conditions.

References

Mendes, W. de A., Ferreira, MAM, Abrantes, LA, & Faria, ER de. (2018). The influence of economic capacity and the formation of public revenues on human development. Revista de Administração Pública , 52(5), 918-934.