Differentiation of municipalities in Sao Paulo State based on constitutional transferences and income tributary taxes.
| Autor | Gouvea, Maria Aparecida |
| Cargo | Report |
Introduction
In federalist systems, there are several reasons for the existence of intergovernmental transferences, such as: dealing with the absence of matching between means of obtaining incomes and with needs of expenses of the local governments, approaching the horizontal iniquities, supply compensations to local governments by benefits generated for the population outside of its jurisdiction, influence the subnational policies of taxation and expense, among others. In order to reach its various objectives, a system of transference should be appropriately designed because otherwise there could be some undesirable results in terms of social welfare. The criteria for transferences are a delicate matter and, in Brazil, they have been the focus of discussion among a number of authors, such as Campello (2003), Gasparini and Melo (2003), Lopes and Arvate (2006) and Arvate and Mattos (2007).
One of the main questions concerning the reform of the State in the last few decades has been the radical change of the rule relative to the social division of work, i.e., in the responsibility assumed by the municipalities and by the private sector to produce goods and services that were once considered an occupation of the national State (Oszlak, 1998, p. 53).
In the case of the municipalities, the decentralization movement has been a strategy used both by the process of State reform as well as by the re-democratization process in the country, favoring the transference of power, resources and assignments to the local governments.
The municipalities, with the Federal Constitution of 1988, gained greater political and administrative autonomy and assumed new assignments in the social area and in the promotion of the economic development within their areas and also assumed the challenge of establishing new forms of relationship with civil society with the objective of strengthening democracy.
Local governments had been the main beneficiaries of the fiscal decentralization that was initiated in the second half of the seventies and strengthened by the Constitution (Constituicao da Republica Federativa do Brasil, 1988), over all with the magnifying of the federal and state transfers to these federal agencies. The federal, Municipalities Participation Fund and the state [MPF], Product and Service Circulation Tax Quota [ICMS] were the main transfers made to the municipalities.
For a great many of them, these two constitutional transfers represent the most significant source of funding of their expenditures. Bovo (2001, p. 114) affirms that for more than 3,000 of approximately 5,550 Brazilian municipalities, 90 percent of their resources come from the constitutional transfers, especially from the MPF.
It should also be pointed out that the main municipal taxes--Service Tax [ISS] and Tax on the Urban Land Property [IPTU]--have a better potential in the medium size and large municipalities. Moreover, in the transfer criteria of the Product and Service Circulation Tax Quota to the municipalities (25 percent of the total collected by the state), the intensity of the economic production exerts great influence, i.e., the transferred amounts are related to the capacity for generating wealth in the municipal scope. "the preponderant logic of this tax is to reward the municipalities that are more successful economically" (Abrucio & Couto, 1996, p. 44).
Thus, the distribution criteria of the resources that compose the MPF cause significant impacts in the finances of the small municipalities. According to Annex II, article 161 of the Federal Constitution of 1988, it is the duty of the complementary law to establish rules on the delivery of the MPF resources in order to promote the social and economic equilibrium among the municipalities. The main criterion of the MPF sharing currently being used is the size of the population. However, questions are raised as to whether this criterion is efficient when it comes to social and economic equilibrium, bearing in mind that the differences from one municipality to another are not exclusively restricted to this one factor, but are also based on the economics, the level of urbanization, physical conditions, capacity for collecting the tributary income, among others factors, beyond the adequate management of the resources by the municipality.
The analysis of the reality of the local governments of the state of Sao Paulo, as seen in the Sao Paulo Index of Social Responsibility [IPRS], indicates the existence of groups of municipalities with different combinations of wealth levels and longevity and educational indicators (Fundacao Sistema Estadual de Analise de Dados [SEADE], 2005a, p. 10). One of the hypotheses raised is that the MPF distribution influences the classification of the different groups of municipalities when serving as an income redistribution mechanism.
Taking as a basic assumption that the largest municipalities possess greater economic production and, consequently, collect more tributary income and receive larger transfers from the ICMS, the MPF transfer must favor the small municipalities. Considering this, the following guiding question was set for this study: Do the variables (I) per capita tributary income, (II) per capita ICMS participation quota and (III) per capita MPF differentiate Sao Paulo's municipalities groups established by the IPRS?
The objective of this work is to verify whether some groups of Sao Paulo's municipalities, established by the IPRS, possess different averages of MPF transfers, ICMS participation quotas and collected tributary income in per capita terms. Moreover, the verification of the existing relation between the set of these variables and the classification of municipalities according to the IPRS is studied.
A contribution is expected to be made to the debate on the adequacy of the distribution criteria of the Municipalities Participation Fund [MPF] and for the deepening of the knowledge of the reality of Sao Paulo's municipalities. In particular, the intention is to indicate the most relevant public income variables to sort the five groups of municipalities and to indicate whether the per capita MPF transfer makes the conditions of social investments among them more equitable since the groups of municipalities studied possess different levels of wealth and, consequently, different fiscal capacities and participation in the ICMS participation quota in per capita terms.
Municipalities Participation Fund [MPF]
The central characteristic of the Brazilian experience regarding the decentralization process was incongruence, with consequences such as the increase of inter and intra-regional socio-economic inequalities and non adequacy of the distribution of assignments to the three federative spheres by the Federal Constitution of 1988, implying the coexistence of omissions or functional overlapping (Affonso, 1996, p. 9). It was like that because the decentralization process that began in the late seventies was commanded by the states and, mainly, by the municipalities, in the re-democratization context, and not by the federal government (Affonso, 1996, p. 5).
Notwithstanding the non definition by the Constitution regarding the split of competences, states and municipalities ended up assuming new responsibilities due to the biggest volume of available resources introduced by the fiscal decentralization, by the reduction of federal expenditures and by the pressures of civil society (Affonso, 1996, p. 9).
As in Abrucio and Couto (1996, p. 40), the municipalities started to face a double challenge: to assure minimum social welfare conditions for its populations (Welfare Function) and to promote economic development based on local actions in partnership with civil society (Development Function).
For the authors, the challenges confronted were influenced by three parameters: the federative fiscal structure, the socio economic differences among the municipalities and the municipality typical dynamic policy (Abrucio & Couto, 1996, p. 40).
The fiscal decentralization process that began in the seventies and which gained volition in the early eighties was carefully examined by the Federal Constitution of 1988. Its main consequences were the increase of the sub-national units' power to tax in its own jurisdiction and the increase of available resources not entailed to the municipalities as a result of the constitutional transfers, including the Municipalities Participation Fund [MPF] and the participation in the income of the Product and Service Circulation Tax Quota [ICMS] (Abrucio & Couto, 1996, p. 42).
Although the local governments have increased their fiscal capacity, this process did not occur homogeneously among the diverse Brazilian municipalities. Bovo (2001, p. 114) emphasizes the fact that the sources...
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