Fiscal Decentralization and Budget Control

Fiscal Decentralization and Budget Control

Studies in Fiscal Federalism and State-local Finance series

Laura Von Daniels

Fiscal Decentralization and Budget Control explores possible institutional solutions to fiscal instability in countries that have traditionally been caught up in problems of over-expenditure and over-indebtedness. How can governments control spending pressure from influential groups, often representing historically grown regional interests? Drawing on a mix of statistical analyses and case studies in institutional theory, the book provides new insights on previous stabilizations in Latin America and facilitates a better understanding of common dynamics of deficits and debt accumulation.

Chapter 5: Fiscal stabilization, subnational fiscal indiscipline and institutional reform in Brazil

Laura Von Daniels

Subjects: development studies, development economics, economics and finance, political economy, politics and public policy, political economy, public policy


This chapter discusses improvements in fiscal accounts and public debt-to-GDP ratios in Brazil at the national and state levels and takes a closer look at economic policies and the politics of institutional reforms from 1990 to 2006. In a nutshell, I argue that the general improvements in Brazil’s fiscal stance and public indebtedness can be explained by the government’s commitment to budgetary institutional reform, changing incentives for budget actors, both on the national and the subnational level. Under initially soft budget constraints, the high level of vertical fiscal decentralization in expenditure led to increasing fiscal problems and debt accumulation on the subnational level, creating liabilities for general government finances. After the government decided to implement stronger fiscal rules between 1997 and 1998, the subnational governments finally reached and maintained balanced budgets.

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