Wagner’s Law and Fiscal Illusion: An analysis of state government finances in Brazil
The aim of this article is to analyze state‐level public finances in Brazil. We examine the dynamics of governmental spending in a panel of 26 Brazilian states in search of evidence of Wagner’s Law and Fiscal Illusion Hypothesis. For the period ranging from 2002 to 2015, three methodologies are appl...
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Published in | Review of development economics Vol. 24; no. 2; pp. 628 - 643 |
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Main Authors | , |
Format | Journal Article |
Language | English |
Published |
Oxford
Blackwell Publishing Ltd
01.05.2020
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Subjects | |
Online Access | Get full text |
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Summary: | The aim of this article is to analyze state‐level public finances in Brazil. We examine the dynamics of governmental spending in a panel of 26 Brazilian states in search of evidence of Wagner’s Law and Fiscal Illusion Hypothesis. For the period ranging from 2002 to 2015, three methodologies are applied: dynamic ordinary least squares (DOLS), fully modified ordinary least squares (FMOLS), and pooled mean group (PMG). The main empirical results found indicate that (1) there is strong evidence of Fiscal Illusion caused by public deficit and by central government transfer grants; (2) there are possible Flypaper Effects; (3) there is no evidence in support of Wagner’s Law; (4) there is low publicness degree of local expenditures; (5) due to Fiscal Illusion, less‐developed Brazilian states tend to be stuck in a public expenditure growth mechanism, especially in expenses related to non‐public goods, which tend to benefit private interests and lobby groups. |
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Bibliography: | Funding information The National Council for Scientific and Technological Development (CNPq), Grant Number: 306426/2016‐1; Brazilian Federal Agency for Support and Evaluation of Graduate Education (CAPES), Grant Number: 88881.172107/2018‐01; The State of Minas Gerais Foundation for Research Funding and Support (FAPEMIG), Grant Number: SEI: 2070.01.0005674/2019‐72. |
ISSN: | 1363-6669 1467-9361 |
DOI: | 10.1111/rode.12662 |