CREATION OF MUNICIPALITIES, FISCAL ILLUSION AND CAPTURE EVIDENCE FROM BRAZILIAN MATOPIBA REGION

Abstract

This article empirically evaluates the effects of the creation of new municipalities in the states of Maranhão, Tocantins, Piauí and Bahia (MATOPIBA) on the municipalities' budget in terms of revenues and expenses (social, economic and overhead). Estimations made using panel data for fixed effects using the differences-in-differences method between 1995 and 2011 produce relevant evidence. First, the dismemberment of new municipalities contributed to an increase in the size of governments on the tax side. On the expenditure side, there was a reduction in per capita social expenditure, indicating a possible fiscal illusion in these municipalities. There was also an increase in per capita overhead expenses, which may suggest a capture of public resources in these municipalities. The use of resources on the expenditure side can vary significantly depending on whether they are funded by own or transferred revenues, reinforcing the hypothesis of fiscal illusion in these local governments.