“The case of Brazil, long known as a highly unequal country, nicely illustrates how inequality reduction and improvement of public service provision can be achieved through federal transfers progressively allocated to favor the most needed localities of the country.”
University of São Paulo
Marta Arretche’s research note, “State Effectiveness in Contemporary Brazil,” confirms the critical importance of federal government transfers to lessen inequalities in municipal revenues across Brazil and the provision of basic public goods that now serve as the cornerstone of this country’s efforts to eliminate extreme poverty and construct a “middle” class.
In this review for the Latin American Studies Association Forum, Arretche reminds readers that Brazil’s noteworthy efforts to reduce social inequality within a democratic process are largely anchored to a series of federal government transfers to states and municipalities for health and educational purposes, not just the “bolsa familia” cash assistance program to needy families. She also reminds readers that “Constitutional transfers are the most important source of municipal revenues in Brazil. The most important of those is composed by 23.5 percent of federal revenues, originating from two taxes: income tax, and the Tax on Industrialized Products.” This implies that while economic growth creates jobs and can raise earnings among the working poor, the federal government also plays a key role to insure that those on the margins of the national and global economy benefit from economic expansion.
Arretche’s research note reports that federal transfers to municipal governments reduce revenue inequality at the local level by half, and that since 2003 the conditional transfers for the provision of health and educational services play the largest role in reducing such jurisdictional resource inequalities among Brazilian cities. Arretche also makes two fundamental points.
- These federal government transfers are constitutionally or legally set and not subject to political steering and clientelism.
- “Instead of empowering backward regional elites, as the literature on fiscal federalism assumes, they can contribute to reduce local inequality, enabling the state to dissociate public service provision from income inequality.”
Too often, international financial institutions including the Inter-American Development Bank, preach private sector initiatives to reduce inequalities and poverty or offer extremely limited public sector solutions largely based on educational opportunities alone. Arretche reminds us that Brazil highlights the role of state effectiveness in making the difference through constitutional and condition based transfers that bring resources to political jurisdictions on the front lines of making the economy work for all.