Financing local development: Quasi-experimental evidence from municipalities in Brazil, 1980-1991

This paper uses a regression discontinuity design to estimate the impact of additional unrestricted grant financing on local public spending, public service provision, schooling, literacy, and income at the community (municipio) level in Brazil. Additional transfers increased local public spending per capita by about 20% with no evidence of crowding out own revenue or other revenue sources. The additional local spending increased schooling per capita by about 7% and literacy rates by about 4 percentage points. The implied marginal cost of schooling -accounting for corruption and other leakages- amounts to about US$ 126, which turns out to be similar to the average cost of schooling in Brazil in the early 1980s. In line with the effect on human capital, the poverty rate was reduced by about 4 percentage points, while income per capita gains were positive but not statistically significant. Results also suggest that additional public spending had stronger effects on schooling and literacy in less developed parts of Brazil, while poverty reduction was evenly spread across the country.intergovernmental grants, decentralization, economic development

Audit risk and rent extraction: Evidence from a randomized evaluation in Brazil

We report results from a randomized policy experiment designed to test whether increased audit risk deters rent extraction in local public procurement and service delivery in Brazil. Our estimates suggest that temporarily increasing annual audit risk by about 20 percentage points reduced the proportion of irregular local procurement processes by about 17 percentage points. This reduction was driven entirely by irregularities involving mismanagement or corruption. In contrast, we find no evidence that increased audit risk affected the quality of publicly provided preventive and primary health care services -measured based on user satisfaction surveys- or compliance with national regulations of the conditional cash transfer program "Bolsa Família".Corruption, Rents, Local Governments, Law Enforcement

Judicial presence and rent extraction

We estimate the effect of state judiciary presence on rent extraction in Brazilian local governments. We measure rents as irregularities related to waste or corruption uncovered by auditors. Our unique dataset at the level of individual inspections allows us to separately examine extensive and intensive margins of rent extraction. The identification strategy is based on an institutional rule of state judiciary branches according to which prosecutors and judges tend to be assigned to the most populous among contiguous counties forming a judiciary district. Our research design exploits this rule by comparing counties that are largest in their district to counties with identical population size from other districts in the same state, where they are not the most populous. IV estimates suggest that state judiciary presence reduces the share of inspections with irregularities related to waste or corruption by about 10 percent or 0.3 standard deviations. In contrast, we find no effect on the intensive margin of rent extraction. Finally, our estimates suggest that judicial presence reduces rent extraction only for first-term mayors.Institutions, Corruption, Rents, Local Governments.

Are rules-based government programs shielded from special-interest politics? Evidence from revenue-sharing transfers in Brazil

Manipulation of government finances for the benefit of narrowly defined groups is usually thought to be limited to the part of the budget over which politicians exercise discretion in the short run, such as earmarks. Analyzing a revenue-sharing program between the central and local governments in Brazil that uses an allocation formula based on local population estimates, I document two main results: first, that the population estimates entering the formula were manipulated and second, that this manipulation was political in nature. Consistent with swing-voter targeting by the right-wing central government, I find that municipalities with roughly equal right-wing and non-right-wing vote shares benefited relative to opposition or conservative core support municipalities. These findings suggest that the exclusive focus on discretionary transfers in the extant empirical literature on special-interest politics may understate the true scope of tactical redistribution that is going on under programmatic disguise.Bureaucracy, institutions, redistributive politics, electoral competition

Government spending and re-election: Quasi-experimental evidence from Brazilian municipalities

Does additional government spending improve the electoral chances of incumbent political parties? This paper provides the first quasi-experimental evidence on this question. Our research design exploits discontinuities in federal funding to local governments in Brazil around several population cutoffs over the period 1982-1985. We show that extra fiscal transfers resulted in a 20% increase in local government spending per capita, and an increase of about 10 percentage points in the re-election probability of local incumbent parties. In the context of an agency model of electoral accountability, as well as existing results indicating that the revenue jumps studied here had positive impacts on education outcomes and earnings, these results suggest that expected electoral rewards encouraged incumbents to spend additional funds in ways that were valued by voters.Government spending, voting, regression discontinuity.

The effect of judicial institutions on local governance and corruption

This paper estimates the effect of judicial institutions on governance and corruption in local governments. Our estimation strategy exploits a unique institutional feature of state judiciary branches in Brazil which assigns prosecutors and judges to the most populous among contiguous counties forming a judiciary district. As a result of this assignment mechanism there are counties with nearly identical populations, some with and some without local judicial presence, which we exploit to impute counterfactual outcomes. Conditional on observable county characteristics, offenses per civil servant are about 35% lower in counties that have a local seat of the state judiciary. The lower incidence of infractions stems mostly from fewer violations of financial management regulations by local administrators, fewer instances of problems in project execution and project management, fewer cases of non-existent or ineffective civil society oversight and fewer cases of improper handling of remittances to local residents

Judicial Presence and Rent Extraction

https://www.grips.ac.jp/list/jp/facultyinfo/litschig-stephan/This paper estimates the effect of state judiciary presence on rent extraction in Brazilian local governments. We measure rents as irregularities related to waste or corruption uncovered by central government auditors. The identification strategy is based on an institutional rule of state judiciary branches according to which prosecutors and judges tend to be assigned to the most populous among contiguous counties forming a judiciary district. Our research design exploits this rule by comparing counties that are largest in their district to counties with identical population size from other districts in the same state where they are not the most populous. Instrumental variable estimates suggest that state judiciary presence reduces the share of inspections with irregularities related to waste or corruption by about 10 percent. The effect is concentrated among first-term mayors, suggesting that judicial presence operates through an increased probability of detection and prosecution rather than an increased probability of conviction, which should discipline second-term mayors as well.JEL Classification Codes: D02, D72, D78, H41, H83This is a revised and extended version of the paper “The Short Arm of the Law: Judicial Institutions and Local Governance in Brazil.”technical repor

Which Tail Matters? Inequality and Growth in Brazil

We estimate the effect of initial income inequality on subsequent income per capita growth using sub-national data from Brazil over the period 1970-2000. Holding initial income per capita and standard confounders constant, we find that places with higher initial inequality exhibit higher subsequent growth. This effect is entirely driven by the lower tail of the initial income distribution: compared to more equal places, sub-national units with a higher share of income going to the middle quintile at the expense of the bottom quintile grow more rapidly, while places with a higher share of income going to the top quintile at the expense of the middle quintile get no growth boost at all. We document that both physical and human capital accumulation in places with higher inequality in the lower tail of the initial income distribution outpace capital accumulation in more equal places, while inequality in the upper tail of the distribution is uncorrelated with subsequent physical or human capital growth. These results are consistent with theories on credit constraints and setup costs for human and physical capital investments.JEL Classification Codes: D3, O1, O4http://www.grips.ac.jp/list/jp/facultyinfo/litschig-stephan/http://doi.org/10.24545/0000166

Policy Choices in Assembly versus Representative Democracy: Evidence from Swiss Communes

This paper investigates whether the form of the legislative institution - assembly versus parliament - affects the level and composition of local public expenditure. We use two research designs in distinct samples of Swiss communes. Our event study analysis focuses on medium-sized and mostly German-speaking communes that switched from assembly to parliament from 1945 to 2010. The regression discontinuity analysis is based on small communes from a French-speaking canton over the period 1986-2005 and exploits a cutoff in local population. Event study estimates suggest that parliament adoption increases total spending by about 6 percent and that this increase is driven mostly by general administration and education spending. In contrast, regression discontinuity estimates are too noisy to be informative. To understand the mechanism at play, we run a survey among assembly participants and document a sizeable under-representation of 20- to 40-year-olds as well as of women in assemblies compared to both the electorate and to voters. Switching from assembly democracy to parliament in our setting therefore seems to increase the representation of two demographics that are known for their relatively strong preferences for education spending.The authors gratefully acknowledge financial support from the Swiss National Science Foundation (Sinergia grant 130648), the Fundació Caixa Manresa and the Severo Ochoa Programme for Centres of Excellence in R&D (SEV-2011-0075).http://www.grips.ac.jp/list/jp/facultyinfo/litschig-stephan/http://doi.org/10.24545/00001576http://id.nii.ac.jp/1295/00001718

Which Tail Matters? Inequality and Growth in Brazil

We estimate the effect of initial income inequality on subsequent income per capita growth using sub-national data from Brazil over the period 1970-2000. Holding initial income per capita and standard confounders constant, we find that sub-national units with a higher share of income going to the middle quintile at the expense of the bottom quintile grow more rapidly, while places with a higher share of income going to the top quintile at the expense of the middle quintile get no growth boost at all. We document that both physical and human capital accumulation in places with higher inequality in the lower tail of the initial income distribution outpace capital accumulation in more equal places, while inequality in the upper tail of the distribution is uncorrelated with subsequent physical or human capital growth. These results are consistent with theories on credit constraints and setup costs for human and physical capital investments.JEL Classification Codes: D3, O1, O4http://www.grips.ac.jp/list/jp/facultyinfo/litschig-stephan/http://doi.org/10.24545/0000157