Balancing Brazilian Regional Inequalities? Reassessing the Union's Voluntary Transfers to Municipalities

Abstract

The Brazilian Constitution requires that Voluntary Union Transfers respond to inequalities in regional development. We assess de facto compliance with this mandate by examining data on voluntary transfer appropriations to municipalities 2012–2019 using data-driven machine-learning methods for causal inference. At the extensive margin (whether a municipality features any transfer appropriations), transfer appropriations reveal a significant constitutional failure—all else equal, less developed municipalities are, in fact, less likely to receive transfers. This result holds true regardless of whether the transfers originate from Congress or the federal government and irrespective of their intended purpose. A similar, though less pronounced, constitutional noncompliance is detectable at the intensive margin (the amount of the transfers appropriated), with the notable exception of the health domain, where appropriations align with the constitutional stipulation. The effort to address regional inequalities through individual amendments, a major component of transfers originating from Congress, did not intensify even after the corresponding appropriations became binding on the Federal Government. We articulate the policy implications of our findings.