The efficiency of public policies and the autonomy cost in Brazilian municipalities

Abstract

ABSTRACT Purpose: Brazilian federalism is complex. In a country with continental dimensions, with three levels of government (central, state, and local government) and 5,570 municipalities, a federative organization is expected to be complex. The fiscal sustainability of subnational governments is a fundamental pillar of any federative structure. This research aims to verify whether the revenue generated is sufficient to pay for the municipality’s existence. Originality/value: This is a gap in the specialized literature, which usually analyzes municipalities in terms of income or expenditures but not comparing the revenue obtained by economic activity and the cost of the municipality’s existence, the main contribution of this research. Design/methodology/approach: As such, we investigated the capacity of Brazilian municipalities to generate revenues to finance their autonomies by combining the income linked to the local economic activity with the cost of the existence of each municipality into an autonomy cost index (ACI). Findings: Our analysis reveals that, of those municipalities who provided the data, one in each four does not generate enough revenues to pay for their existence. The results suggest that the ACI of Brazilian municipalities decreases with the population and business activity. Hence, our autonomy cost index performs worse in Brazil’s North and Northeast regions. This context opens space for a crucial debate and further studies within the scope of Brazilian federalism.