OPTIMIZATION OF PUBLIC SPENDING IN BRAZILIAN MUNICIPALITIES

Abstract

The objective of this study is to analyze the influence of the composition of municipal public expenditure in the promotion of economic growth, from 2001 to 2016. For this, the study analyzes 5,533 Brazilian municipalities. In order to examine the productivity (or unproductivity) of municipal public expenditure by function in relation to economic growth, the empirical models are based on the theoretical model of Devarajan, Swaroop and Zou (1996). All models were estimated by the fixed effects model. The results indicate that, in the three models analyzed (all municipalities, developed municipalities and undeveloped municipalities), the productivity of public expenditure was lower than the deadweight loss associated with the taxes required to fincance it. Beyond that, the results indicate that, in the developed municipalities, housing and urbanism expenditure and energy expenditure were productive, while legislative expenditure was unproductive. In the undeveloped municipalities, transport expenditure was productive, while judicial expenditure and health expenditure were unproductive. As an additional analysis, a nonlinear theoretical relationship of public expenditure to economic growth was analyzed. In underdeveloped municipalities, it is inferred a non-linear relationship in judicial expenditure and in education and culture expenditure. In developed municipalities, it is inferred a non-linear relationship in legislative expenditure and health and sanitation expenditure.