Arena, MarcoRevilla, Julio E.2012-03-192012-03-192009-12-01https://hdl.handle.net/10986/4337The empirical literature on budget cyclicality has generally focused more on assessing the degree of pro-cyclicality in federal (central government) revenues and expenditures and less on budget cyclicality at the sub-national level in multi-tiered systems. This paper attempts to contribute to the literature on budget cyclicality by examining how sub-national fiscal revenues and expenditures are linked to the business cycle in Brazil, particularly after the introduction of the Fiscal Responsibility Law. It explains the degree of pro-cyclicality across Brazilian states, and assesses whether intergovernmental transfers help to stabilize states finances. These issues are addressed using both a time-series and a cross-section dimension at the Brazilian state level for the period 1991-2006. The empirical evidence suggests the existence of a pro-cyclical fiscal policy in Brazil at the state level. However, the introduction of the Fiscal Responsibility Law helped to reduce Brazilian states spending-side pro-cyclicality. For the Brazilian states, the main source of the observed pro-cyclicality is found in the behavior of tax revenues directly collected by the state governments. Intergovernmental transfers (federal transfers to the states) are not associated with changes in gross state product, but they are pro-cyclically aligned with national gross domestic product, which could amplify the pro-cyclical behavior of sub-national expenditures.CC BY 3.0 IGOACCESS TO CAPITALACCESS TO CREDITAUTONOMYBAILOUTSBALANCE OF PAYMENTSBORROWINGBUDGET CONSTRAINTBUDGET CONSTRAINTSBUDGET RIGIDITIESBUSINESS CYCLEBUSINESS CYCLESCAPITAL EXPENDITURECAPITAL EXPENDITURESCAPITAL FLOWSCAPITAL MARKETCAPITAL MARKETSCAPITAL SPENDINGCENTRAL BANKCENTRAL GOVERNMENTCENTRAL GOVERNMENT REVENUESCOEFFICIENTSCONSOLIDATIONCORRUPTIONCREDIT CONSTRAINTCREDIT MARKETSCREDITWORTHINESSCURRENT EXPENDITURESCYCLICAL FISCAL POLICYDEBT CRISESDEBT RESTRUCTURINGDEBT STOCKDEBTSDECENTRALIZATIONDEFICIT BIASDEFICITSDEVALUATIONDEVELOPING COUNTRIESDEVELOPMENT BANKDISCRETIONARY EXPENDITURESDISCRETIONARY FISCAL POLICYDOMESTIC INTEREST RATESDUMMY VARIABLEECONOMIC ACTIVITYECONOMIC CHARACTERISTICSECONOMIC GROWTHEMERGING ECONOMIESEMERGING MARKETSEMPLOYEEEQUALITYEXPENDITUREEXPENDITURE CATEGORIESEXPENDITURE DATAEXPENDITURE EQUATIONSEXPENDITURESEXTERNAL BALANCESEXTERNALITIESFEDERAL ADMINISTRATIONSFEDERAL COUNTRIESFEDERAL DISTRICTFEDERAL GOVERNMENT DEBTFEDERAL REVENUESFEDERAL SYSTEMSFEDERAL TAXFEDERAL TAXESFEDERAL TRANSFERSFEDERAL TRANSFERS TO STATESFINANCESFINANCIAL DEPTHFINANCIAL MARKETSFISCAL ADJUSTMENTFISCAL ADJUSTMENT PROCESSFISCAL ADJUSTMENTSFISCAL BALANCESFISCAL CONSOLIDATIONFISCAL DECENTRALIZATIONFISCAL EXPANSIONFISCAL FEDERALISMFISCAL IMPULSEFISCAL PERFORMANCEFISCAL POLICIESFISCAL POLICYFISCAL STANCEFISCAL SURPLUSESFISCAL VARIABLESFIXED EFFECTSFOREIGN CAPITALGOVERNMENT DEBTGOVERNMENT FINANCESGOVERNMENT SPENDINGGOVERNORGROSS DOMESTIC PRODUCTGROSS REVENUEGROSS REVENUESHARD BUDGET CONSTRAINTSINCOME SHOCKSINCOME TAXINDEBTEDNESSINFLATIONINTEREST PAYMENTSINTEREST RATEINTERGOVERNMENTAL REVENUEINTERGOVERNMENTAL TRANSFERSINTERNATIONAL BANKINVESTMENT SPENDINGLEVEL OF GOVERNMENTLIABILITYLIABILITY MANAGEMENTLIMITED ACCESSLOCAL GOVERNMENTSMACROECONOMIC CONDITIONSMACROECONOMIC INSTABILITYMACROECONOMIC POLICIESMACROECONOMIC POLICYMACROECONOMICSMATCHING GRANTSMONETARY FUNDMUNICIPAL GOVERNMENTSMUNICIPALITIESNATIONAL TREASURYNET CURRENT REVENUEPENSIONSPERSONAL INCOMEPOLICY DISCRETIONPOLICY FRAMEWORKPOLITICAL ECONOMYPRIMARY EXPENDITUREPRIMARY SURPLUSPRIVATE CREDITPROVINCESPROVINCIAL GOVERNMENTPROVINCIAL REVENUESPUBLIC DEBTPUBLIC GOODSPUBLIC SECTORPUBLIC SPENDINGRECESSIONSREDISTRIBUTIONREVENUE CONTRIBUTIONSREVENUE STREAMSREVENUE VARIABLESREVENUE VOLATILITYRISK SHARINGSOCIAL SERVICESSTATE BUDGETSTATE EXPENDITURESSTATE FISCAL BEHAVIORSTATE GOVERNMENTSSUB-NATIONALSUB-NATIONAL DEBTSUB-NATIONAL EXPENDITURESSUB-NATIONAL GOVERNMENTSUB-NATIONAL GOVERNMENTSSUBNATIONALSUBNATIONAL EXPENDITURESSUBNATIONAL GOVERNMENTSTAXTAX BASETAX REVENUETAX REVENUE VOLATILITYTAX REVENUESTOTAL EXPENDITURETOTAL EXPENDITURESTOTAL HEALTH EXPENDITURESTRANSPARENCYWorld Bank10.1596/1813-9450-5144