Federalism and Public Resources in Brazil: Federal Discretionary Transfers to States

Abstract

This paper analyses intergovernmental relations in Brazil based on the dynamics of the distribution of federal discretionary transfers to the states between 1997 and 2008. The theme becomes more relevant when we consider the process of fiscal recentralization that has taken place in Brazil, particularly from 1994 on, and the importance of discretionary transfers for state budgets. Our purpose is to identify which factors can account for a higher or lower state's share in overall resources, by building on two explanatory dimensions: the partisan-political and the social-redistributive. The first one examines how the political dynamic affects resource allocation; the second, if discretionary transfers exhibit a redistributive character across states. Our findings show that a governor's partisan alignment with the president or with the president's government coalition are important factors in determining higher resource allocation for his/her state, and that states that are overrepresented in the lower chamber are favored. We have also found a redistributive character associated with federal discretionary transfers, favoring states with lower Human Development Index (HDI) rankings.