Fiscal institutions of Brazilian municipal borrowing

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Abstract

In an effort to understand subnational borrowing, this article explores how three Brazilian institutions—the 1988 Constitution which mandates revenue and expenditure assignments among the levels of the federation; the national Law of Fiscal Responsibility, which imposes expenditure and debt limitations on all levels and branches of government; and various borrowing arrangements—affect the municipal borrowing environment. These institutions are examined in light of de Mello's (2001) policy recommendations for strengthening efficiency and fiscal discipline in subnational borrowing. The institutions of Brazilian borrowing were found to have some of de Mello's recommendations, with the new Constitution and the Law of Fiscal Responsibility making progress towards increased fiscal responsibility, but the current borrowing arrangements serving to maintain a controlled system that is not conducive to responsible municipal borrowing. Several recommendations are made to improve the borrowing environment and foster fiscal discipline and efficiency Copyright © 2008 John Wiley & Sons, Ltd.

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