EFFECT OF TAX INCENTIVES ON MUNICIPAL BUDGET BALANCE

Abstract

Given the dependence of municipalities on tax distribution originating from other subnational entities, the effects of tax incentive policies, applied simultaneously on IPI, ICMS export, PIS and COFINS, on the budgetary balance of Brazilian municipalities were evaluated. The sample considered was 5,570 Brazilian municipalities. Secondary data with temporal amplitude was used, delimited by data availability, between the years 1999 and 2017. Econometric models were estimated for panel data in stages. To instrument the estimation of the models, the stationarity of the time series was tested, and to verify the existence or not of endogeneity, the consistency test of the Durbin-Wu-Hausman estimators was applied. The study advances and innovates, by analyzing the fiscal balance of public finances in Brazilian municipalities in a scenario of multiple tax exemption policies adopted simultaneously. The main results indicated that in general, tax incentive policies did not favor the fiscal balance of the finances of Brazilian municipalities, especially small ones. As for the implications, within the scope of public policy makers, the results showed that these political actors are unaware of how sensitive municipalities are to political and fiscal maneuvers at higher levels of government.