Lunch Seminar Economics (LSE) - 2021/2022
Interviene: Juan Francisco Santini, Innovations for Poverty Action
Title: Revenue Slumps and Fiscal Capacity: Evidence from Brazil
Authors: J. F. Santini, C. Ferraz, D. Foremny
Abstract: The capacity to tax is one of the main drivers of the development process, but yet little is known about when and why states intend to improve this capacity. This paper studies the impact of exogenous revenue shocks on investment in fiscal capacity in Brazil. Using a difference-in-difference event-study design, we analyze budgetary adjustments after an unexpected shock in formula transfers to local governments. A sudden reduction in transfer revenues induces governments to invest in fiscal capacity. Jurisdictions hit by a negative revenue shock increase local tax collection by approximately 30 percent. We show that part of this effect happens through broadening of the tax base, mainly due to additional spending on tax auditors and technicians, and an improvement of property tax-related registers.