EFFECTIVENESS OF PARTICIPATION FUND OF THE STATES AND THE FEDERAL DISTRICT TO PROMOTE SOCIOECONOMIC BALANCE IN BRAZIL: an empirical analysis for the period 1993-2013

Abstract

To promote the socio-economic balance among the Brazilian states, the Federal Constitution determined that apportionment of the Participation Fund of the States and the Federal District - FPE - should benefit the less-favored regions. This study aims to analyze, trough econometric models for panel data, if the FPE resources are effective in its constitutional mission, or if there is evidences of a version of the "plenty paradox". Empirical tests concerning 27 states of the federation, from 1993 to 2013, indicate that the FPE is not effective in promoting the designed socioeconomic balance, once the initial positive impact on economic growth and the initial reduction of income concentration are reverted in the period after the resources transferences. In such case, we provide evidence that the transference of resources without effective rules to ensure performance evaluation and accountability provide in the short run externalities that confront the fundamentals of the money transfers adopted by the Brazilian govern.

Keywords

• fpe
• socioeconomic balance
• paradox of plenty
• participation fund of the states and the federal district