Quantifying the Macroeconomic Effects of Tax Competition: the Brazilian "Fiscal War" [Job Market Paper] [Download]
This paper studies the role of tax competition among state governments in reducing overall public goods provision. To this end, I develop a multi-region general equilibrium model with endogenous state taxes, public expenditures, and firm location choices. The model is estimated using novel state-level data on sector-specific tax exemptions in Brazil. Under my most conservative estimates, tax competition reduces public goods provision by 18 percent relative to a centralized tax regime. While some Brazilian states succeed in raising their private income levels during the fiscal war, I find no aggregate gains in income as a result of tax competition.
The Costs of Running a Minority Government [Download]
Executive branch representatives must garner support from elected legislative officials to govern. Building a legislative majority is an important step in most executive mandates, but the process may impose significant costs on society. Using a regression discontinuity design, I show that Brazilian municipalities where mayors hold relatively few seats in the municipal chamber hire substantially more non-tenured civil servants. RD estimates indicate that minority-mayors hire (53.7 percent), spend (70.7 percent), and rely more on non-tenured civil servants as a labor supply source (40.9 percent). This increase in hiring is not limited to top government posts but extends to positions filled by both skilled and unskilled workers. Teacher and school principal surveys show that these additional hires are often inexperienced and perform worse on indicators of job quality. Municipalities led by mayors with limited legislative support also see declines in standardized test scores. Heterogeneous causal estimates further show that the effects on bureaucratic turnover decline monotonically with the number of seats held by the winning mayor in the municipal chamber.