Tax Me, but Spend Wisely? Sources of Public Finance and Government Accountability

Existing evidence suggests that extra grant revenues lead to little improvements in public services in developing countries—but would governments spend tax revenues differently? This paper considers a program that invests in the tax capacity of Brazilian municipalities. Using variations in the timin...

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Bibliographic Details
Published in:American economic journal. Applied economics 2017-01, Vol.9 (1), p.274-314
Main Author: Gadenne, Lucie
Format: Article
Language:English
Subjects:
Accountability
Corruption
Developing countries
Education
Estimated taxes
Estimates
Expenditures
Government
Government spending
Infrastructure
LDCs
Local government
Municipal taxes
Politicians
Population estimates
Property taxes
Public finance
Public services
Studies
Tax increases
Tax revenues
Taxes
Transfer taxes
Urban infrastructure
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Summary:Existing evidence suggests that extra grant revenues lead to little improvements in public services in developing countries—but would governments spend tax revenues differently? This paper considers a program that invests in the tax capacity of Brazilian municipalities. Using variations in the timing of program uptake, I find that it raises local tax revenues and that the increase in taxes is used to improve both the quantity and quality of municipal education infrastructure. In contrast, increases in grants over which municipalities have the same discretion as taxes have no impact on any measure of local public infrastructure. These results suggest that the way governments are financed matters: governments spend increases in tax revenues more toward expenditures that benefit citizens than increases in grant revenues.
ISSN:1945-7782
1945-7790
DOI:10.1257/app.20150509