Classification of Bahia municipalities according to fiscal effort: effect of redistributive and devolutive transfers for typologies

Abstract

This study aims to create a reference framework, in the form of a typology of municipal tax behavior, on the performance of Bahian municipalities in the exploitation of their tax base. In addition, it seeks to evaluate which types of transfers (redistributive or devolutive) most influence the collection performance of Bahian municipalities. To classify and typify the municipalities, the study uses Cluster Analysis, using the agglomerative hierarchical method. The theoretical and empirical literature on fiscal decentralization based on transfers and its relationship with the fiscal performance of municipalities serves as a basis for the investigation. The central hypothesis assumes that the classification of municipalities into best and worst collectors of local taxes (grouped according to tax behavior) is strongly correlated with redistributive transfers. The study covers the year 2022 and updates fiscal statistics for municipalities in Bahia for the year 2023. The results allowed Bahian municipalities to be grouped into 4 clusters, associating the collection effort with the volume of per capita transfers received. Thus, it is possible to infer that the fiscal performance of the worst collectors is influenced by the transfers received. The scientific findings reinforce the importance of the fiscal decentralization model to correct the fiscal gap and reduce regional inequalities. However, it reinforces the need to rethink high unconditional transfers, given that they open space for fiscal laziness and other imperfections.