Three essays on intergovernmental transfers and local public services in Brazil

Chapter 1 investigates the effect of judicial institutions on the quality of government at the local level in Brazil. Quality of government is measured as the incidence of irregularities in federally funded local public services revealed by auditors. The estimation strategy exploits a unique institutional feature of state judiciary branches which assigns prosecutors and judges to the most populous among contiguous counties forming a judiciary district. Results suggest that conditional on observable county characteristics, offenses per civil servant are about 35 percent lower in counties that have a local seat of the state judiciary.;Chapter 2 asks whether providing additional fiscal transfers to local communities leads to improved public services, given existing management capacity and incentive and accountability structures. The analysis uses a regression-discontinuity design to evaluate the effect of unrestricted fiscal transfers on local spending (including on education), schooling and learning in Brazil. Results show that transfers increase local public spending almost one for one with no evidence of crowding out own revenue or other revenue sources. Extra per capita transfers of 1000 Reais lead to about 0.42 additional years of elementary schooling and student literacy rates increase by about 5.6 percentage points on average. Results also suggest that additional resources have stronger effects in more rural and less developed parts of Brazil.;Chapter 3 examines whether rules can be used to shield public resources from political interference. The Brazilian constitution and national tax code stipulate that revenue sharing transfers to municipal governments be determined by the size of counties in terms of estimated population. In this chapter I document that the population estimates which went into the transfer allocation formula for the year 1991 were manipulated, resulting in significant transfer differentials. I test whether conditional on county characteristics that might account for the manipulation, political conditions in local and national arenas are correlated with estimated populations. Results suggest that revenue sharing transfers were targeted at aligned local executives and right-wing national deputies in electorally fragmented counties.