Who has the most resources to govern? A comparison between states and local governments per capital revenue

ABSTRACT This paper examines differences in per capita revenues across Brazil’s states and capital municipalities. It provides a theoretical overview of Brazil’s fiscal equalization programs (the State and Municipal “Participation” Funds). The paper then provides evidence that these programs are not only failing to meet their equalization objectives, but in addition they are creating distorted patterns of revenues per capita across states and municipalities: some economically poor states and municipalities have revenues per capita far above the national average. This pattern of revenues per capita should be brought to the public’s and policy makers’ attention so that they may: (i) better evaluate the performance of state and local governments, and (ii) better evaluate proposals for revising Brazil’s system of fiscal federalism.