Fiscal sustainability of subnational governments in Brazil by costing expenditures

Abstract

This paper contributes to the debate about fiscal sustainability considering a more active restriction to conduct the analysis at the level of subnational governments, given the innocuity of the debt indicator provided in Resolution no 40/2001 of the Brazilian Federal Senate. Data from the Fiscal Management Reports between 2008 and 2016 allows the construction of a time series indicator of costing of states and the main cities governments that are applied to an endogenous threshold autoregressive (TAR) model and show a critical fiscal situation in 10 of the 27 states and in 3 of the 26 capitals of the country. Estimates of the tests of linearity and global and partial stationarity suggests the existence of delayed fiscal stabilizations and support the argument that bargaining over the public budget is more intense in the smaller spheres of government. Furthermore, a threat to the goals of lesser tolerance with the growth of public spending established in the LRF and in Federal Senate Resolutions 40 and 43/2001 is made explicit.