Fiscal Reform and Federal Relations

Abstract

Brazilian fiscal reform became deadlocked because reform proposals tried to avoid considering federal relations. There are two main types of federal relations: the competitive and the cooperative. With both types coordination mechanisms can be observed. Brazilian federalism is a mixture of both types which makes reforms difficult. We argue that it is more important to find mechanisms to facilitate cooperation than to discuss the qualities of any alternative fiscal structure. Moreover, since fiscal reforms entail a great deal of uncertainty, it is important to discuss the timing of reforms and the compensation mechanisms beforehand.