Tax Me, But Spend Wisely? Sources of Public Finance and Government Accountability

Existing evidence suggests that extra grant revenues lead to little improvements in public services in developing countries - but would governments spend tax revenues differently? This paper considers a program that invests in the tax capacity of Brazilian municipalities. Using variations in the timing of program uptake I find that it raises local tax revenues and that the increase in taxes is used to improve both the quantity and quality of municipal education infrastructure. In contrast increases in grants over which municipalities have the same discretion as over taxes have no impact on any measure of local public infrastructure. These results suggest that the way governments are financed matters: governments spend increases in tax revenues more towards expenditures that benefit citizens than increases in grant revenues.

Issue Date:
Oct 10 2016
Publication Type:
Working or Discussion Paper
DOI and Other Identifiers:
Record Identifier:
Total Pages:
Series Statement:
WERP 1131

 Record created 2018-03-07, last modified 2020-10-28

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