Fiscal Decentralization and Redistribution of Public Revenue: FPE in the Brazilian Constitutional Convention of 1988


This work explains the choices regarding the fiscal institutions approved during the Brazilian Constitutional Convention of 1988. The new Brazilian Constitution augmented the distribution of public resources across states through intergovernmental transfers, mitigating state-level regional inequalities, but did not impose any loss of revenue to rich states. The interplay between the party structure, the electoral institutions, the Convention decision-making rules, and the regional inequalities explains that outcome. First, representatives from poor states with low fiscal capacity formed a coalition. They demanded more regional redistribution through constitutional transfers. Second, that coalition was favored by the majoritarian rule of the Constitutional Convention. Third, representatives in the Constitutional Convention were all members of national parties. At the same, time they voted in favor of the interest of their states, they defended the interest of their parties. Legislative representatives are elected at the state-level elections. If the members of the poor-states coalition had chosen a different fiscal design and this design had caused loss of revenue to the states of the rich-states minority coalition, such a decision could have caused electoral losses for some parties that have members at both poor- and rich-states coalitions. For this reason, they augmented the regional redistribution but did not impose any loss of revenue for rich states.