The Political Economy of Brazilian Local Government Taxation: changing the rules without changing the law for efficiency

Transcription

1 The Political Economy of Brazilian Local Government Taxation: changing the rules without changing the law for efficiency Monica Pinhanez Institute on Municipal Finance and Governance Munk School of Global Affairs January 2012

2 Outline Three in One presentation i. General Background ii. Brazilian Tax System iii. Applied Study: The Political Economy of Local Government Taxation in Brazil

3 i. Brazil What country is this?

4 191 million 5 th

5 5 th 3.3 million

6 8th 2.17 trillion

7 Public Debt as % GDP

8 7.5% 18 th

9 USA China Brazil India

10

11

12 15%

13 % 1/

14 26 23

15 513 81

16 PMN PSOL PDT PV, PPS PSC PT PP DEM PMDB PSDB PSB, PTB, PCdoB PR, PRB and others

17 11,300 71st

18 % 1/4 1/3 million

19 2,076% 6.51% 1,000,000,000,000,000 %

20 67.6% 70.4%

21

22

23

24 rd th 73 11

25 8,5%

26 Gap Between Rich and Poor

27 ii. Tax System BRAZIL = 34

28 Tax Burden Telecoomunications

29 TAX BURDEN EVOLUTION

30 Tax Burden and Gini

31 Tax Burden - % GDP

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33 Tax Revenue Government Level RECEITA TRIBUTÁRIAS (% of Tax Revenue) Federal States Municipalities 4.22 TOTAL Fonte: Copat/SRF

34 Tax Structure

35 Tax Composition % of total tax revenue M S M F F

36 Tax Structure - % Total Tax Burden

37 State Tax - % GDP

38 Municipal Own Revenues

39 Intergovernmental Transfers

40 Municipal Revenue Distribution

41 Local Government Transfers Rev

42 Public Expenditure by Gov t Level

43 iii. Applied Research To understand under what conditions tax administration reforms at the local level not only improve tax collection, particularly property tax, but also service effectiveness To understand the conditions and elements which contribute to strengthening public bureaucracies and to making them effective Strategies related to understand learning and professionalization of tax officials

44 Motivation Scarce research on subnational governments Paucity of credible and consistent data Recent consistent and successful tax modernization programs at the central, state and local level Census data IDB Data BNDES

45 Previous Research: Brazilian Sub-national States Tax Administration All the states faced debt and fiscal crisis The Ministry of Finance and the IDB supported AR for all States Starting in 1997, all 27 Brazilian State Tax Administration Bureaus (STABs) went through restructuring Detailed operation Mission: To be a leading tax administration, deliver good service with well trained and dedicated staff Goals: To increase tax collection, to provide excellent service to taxpayers, to increase voluntary compliance, to have highly motivated staff, to be cost effective, to leverage on technology 1/26/

46 % Growth Modernization Results (Selected States): Increased Tax Revenue % Growth VAT % Growth ( ) GDP% Growth ( ) 120% 120% 100% 100% 80% 60% 40% 20% Bahia Ceará Paraíba Pernambuco Rio Grande do Norte São Paulo 80% 60% 40% 20% Bahia Ceará Paraíba Pernambuco Rio Grande do Norte São Paulo 0% 0% -20% % Year Year 1/26/

47 State Tax Administration Findings: Combined Strategy(ies) Strategy I: A New Cognition for the Sector : from territories to production chains and economic segments Strategy II: Computerization Strategy III: Capacity Building 1/26/

48 This strategy led to Capturing sectors that were not paying Professionalization and specialization of tax collectors training Changing tax management => credibility among tax payers (business sector) Teams, specialization of industry segments (rationalized management structure and scientific approach) Newly forged ties between private/public Business associations Unions and professional associations Client perspective 1/26/

49 BRAZIL Selected cases 1/26/

50 Current Research I. Case Studies: Brazilian Local Tax Administration Bureaus (STABs) II. I. 5,561 municipalities I. PMAT BNDES 321 municipalities II. PNAFE BID 426 municipalities Tax Structure at Local Level I. Urban Property Tax II. Services Tax III.Transfer Tax 1/26/

51 Methodology Identify local governments that have undergone administrative reforms in the tax sector Collect data and information on tax administration performance in tax collection and tax service quality Suggest an explanation for performance in tax collection and tax service quality Propose a hypothesis explanation and model to fit data that accounts for the aforementioned performance Inform and disseminate strategies that generate better performance

52 Axis Title Local Government Revenues R$ 300,000,000, Tax Share on Local Governments Total Revenue 98 / 09 R$ 250,000,000, R$ 200,000,000, R$ 150,000,000, Total Revenues Total Taxes R$ 100,000,000, R$ 50,000,000, R$

53 Axis Title Municipal Taxes R$ 50,000,000, Municipal Tax Share 98 / 09 R$ 45,000,000, R$ 40,000,000, R$ 35,000,000, R$ 30,000,000, R$ 25,000,000, R$ 20,000,000, R$ 15,000,000, R$ 10,000,000, Others (Tax - UPT - ST - Services Taxes TT UPT R$ 5,000,000, R$

54 Regression Yi,t = Pi,t + Xi,t + t + i + i,t where Yi;t is tax collection per capita (total taxes, IPTU or ISS) in municipality i and year t, Pi;t a dummy equal to 1 if municipality i is in a PMAT program in year t, Xi;t a set of time varying controls, t are year fixed effects, and i a municipality fixed effects Controls include GDP per capita, the share of agriculture and services in GDP (from IBGE), population and political variables (political competition, mayor's party affiliation, and whether the mayor is facing a term change

55 Evolution of taxes per capita in treated and control municipalities,

56 Results the PMAT program increased tax collection by nearly 9 BRL per capita on average (a 9% increase), and IPTU and ISS tax collection by more than 4 BRL per capita each the program's impact was dynamic: after 6 years, there is a 15% increase in total tax collection.

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58 Current Research Qualitative research Choose municipalities in RJ, SP, MG 3 Metropolitan areas: São Paulo, Rio de Janeiro, Belo Horizonte Interview phase

59 QUESTIONS, CRITIQUES... THANK YOU!!!