Impact Assessment of Interregional Government Transfers: Lessons from the Brazil Experience

Abstract

The aim of regional policy is the attainment of a more efficient and/or equitable interregional distribution of economic activity (Temple 1994). Haddad (1999) has demonstrated that in the last 20 years or so Brazil has undergone deep structural changes that have been responsible for the setback in the process of polarization reversal in the economy. After 1988, with the new Constitution, the central government was hampered in advancing its regional policy agenda by a profound loss in its revenues to the state and municipal governments. Nevertheless, the fiscal crisis reached all levels of government, decreasing their financial capability for carrying out new investment ventures. One of the major consequences has been the paucity of investment in economic infrastructure that has contributed to increasing the average cost of production. Therefore, producers’ costs increased since they faced inefficient mechanisms for trade and transportation, many of which lagged technologically.