Research
Endowments and Fiscal Federalism: Causes and Consequences of the Brazil’s 1891 Constitution (Job Market Paper)
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This paper is part of a broader research effort attempting to link the current high levels of regional inequality in Brazil to key provisions in the 1891 Constitution. I provide a fiscal federalism model to explain how the regional reallocation of the production of coffee changed the bargaining power of local elites in certain states, enabling them to control revenues derived from export taxes and international debt, as enshrined in the 1891 Constitution. Using newly collected archival data I demonstrate that state public revenues per capita became closely aligned with exports per capita, but only after the constitution had been enacted. Brazilian states with substantial revenue capacity obtained lower interest rates on debt contracted in international capital markets. Endogeneity between interest rates and state revenue is addressed with a simulated instruments approach.
Endowments, Fiscal Federalism, and the Cost of Capital for States: Evidence from Brazil, 1891-1930 (with Aldo Musacchio)
Download PDFWe study the consequences of the 1891 Constitution in the capacity of Brazil’s states to borrow capital in international capital markets. Since states got the right to tax exports in the 1891 Constitution, and that some of them had significantly commodity exports, we examine if the differences in exports capacity across states determined the interest rates that Brazil states paid during the First Republic (1889-1930). For this purpose we use a newly created database of state debt quotations and a series of state level fiscal variables. We demonstrate that states with higher state public revenue increased their probability to issue international bonds and borrowed at lower interest rates. We address endogeneity with a simulated instrumental variables approach, using export commodity shares at state level and national commodity export growth to simulate exports at state level.
Bargaining for Fiscal Control: Tax Federalism in Brazil and Mexico, 1870-1930
Brazil is more decentralized than Mexico, even when controlling for economic characteristics. I use a model of fiscal federalism to analyze the historical roots of these differences. I argue that the type of endowments produced determined the bargaining power of local elites at the end of the nineteenth century. While in Brazil coffee was the most important commodity, Mexico relied heavily on mining products. Coffee was produced by local landowners who became economically powerful, allowed them to control export taxes in the 1891 Constitution. On the other hand, mining required foreign capital and technology. Foreign investment was promoted by the Mexican Federal Government, weakening the relative power of local elites.
Regional Inequality in Brazil: Consequences of the 1891 Constitution in the Provision of Public Goods (with Aldo Musacchio)
How do endowments affect long-term development? A large literature has linked endowments to institutions and economic development. In this paper we show a simple link between commodity exports (determined by endowments) and the level of state government expenditures on public goods during the first republican period in Brazil, 1889-1930. During this period Brazil had an extreme form of fiscal federalism with little redistribution among states, thus allowing us to look at the effect of endowments on state policies . Using OLS and IV techniques we use an original database of state-level variables to show that endowments affected government expenditures on public goods in the short run and (possibly) GDP per capita at the state level in the long run.