Financial dynamics of Brazilian municipalities

Abstract The study explores the fiscal events of Brazilian municipalities in the period 2002 to 2016, analyzing the relationship between revenues, personnel expenses, size strata, delineations of economic activity, and municipal wealth, considering moments of contraction and national product expansion. The methodology used panel data, with the application of the Hausman specification test, in which the fixed-effect model, in comparison with the random-effects model, proved to be more suitable for determining the variable relationship dependent and independent. The calculation of the Quotient of the Financial Execution Outcome (QFEO) measured the fiscal situation of the federated units. It measured the relationship of the QFEO with other variables, such as the collection profile, the municipal economic activity, the municipality’s economic wealth, the expenditure on personal, and the population size. The s results showed that higher personnel expenses negatively impact tax investigations. The best calculations in the QFEO occurred in units where the highest gross domestic product indicators were detected per capita. As for the level of economic activity, the financial preponderance of the agricultural and service sectors revealed better pecuniary conditions. The worst results were found in municipalities with an industrial profile and classified as small. The economic crisis of 2009 resulted in poor fiscal results, while the political/economic crisis of 2015 and 2016 had more appropriate budget responses.