Internal Transparency: Compliance and Punishment in the Brazilian Municipal Budget Process

Abstract

Much has been written about external transparency in the public sector. However, internal transparency – the inter and intra governmental disclosure of information – is commonly overlooked as an object of study. Underestimating the importance of internal transparency is surprising, as it is a determining factor for the coordination of public policies and the quality of democratic governance. This paper analyzes the short-and-long-term costs of failing to comply with internal transparency requirements linked to municipal budgets in general and education spending in particular. In this study, we employ mixed methods, quantitatively analyzing the short-term incentives to comply with education finance transparency requirements and, qualitatively, the future consequences of noncompliance. Results show that municipalities receiving the largest volume of voluntary transfers are more likely to meet internal transparency requirements; however, the costs of not fulfilling such requirements are low and easily reversible in the short-term. In the long-term, municipal officials who fail to comply with budget regulation, including internal transparency statutes, can face more severe consequences, such as the possibility of being barred from office. However, our results show relatively few instances of punishment and, on average, punishments are only levied after ten years of legal processes. Overall, our results show how the Audit Courts (Tribunais de Contas), as the lynchpin agents of budgetary accountability and enforcement for Brazil’s 5570 municipalities, are as important as they are ineffective.