FISCAL FORUM OF BRAZILIAN STATES
Share of Revenue and Intergovernmental Transfers in Brazil
Team:
Alessandro Melo da Silva
Célia Maria Silva Carvalho
Edna Nazaré Cardoso Farage
Fernando de Castro Fagundes
Janaína Gonçalves
Jonil Vital de Souza
José Carlos dos Santos Damasceno
Lourdes Maria Porto Morais
Luiz Márcio de Souza
Mª Alzenete X. Moura
Maria Roseana Soares
Patrícia F. Motta Café
Paula Mª Bandeira Costamilan
Rivael de Aguiar Pereira
Rosana Richa Salame
Supervisor: Prof. Sérgio Prado (Unicamp-FGV)
Co-ordination: Prof. Fernando Rezende (FGV)
Objective: To analyze and discuss the National resource
sharing and transfer system, aiming to identify its results,
potential problems, and improvement alternatives.
Focus: Spending capacity of each Federated Entity per
Capita (AVAILABLE REVENUE PER CAPITA).
Brazilian Resource Sharing and Transfer System:
• Return Flows:
• ICMS Share, Salário Educação (Education Payroll Tax), etc.
• Compensatory Flows:
• Kandir Law/ Aux. Exp. (Export Incentive) and IPI (Tax on Manufactured Goods)
– Export.
• Flows for Programs at the national level:
• SUS (Unified Health System), FUNDEF/FUNDEB (Education Funds);
• Redistributive Flows:
•FPE (State Participation Fund) and FPM (Municipal Participation Fund).
Main Role of Redistributive Transfers:
Mitigate imbalances in spending capacity between jurisdictions.
Current situation:
FPE
FPE
• Does not consider other revenues;
• Frozen indexes;
• Does not adjust to dynamics of tax system.
FPM
 Considers only population dissociated from income (interior);
 Population criterion is biased for municipalities with small population.
HORIZONTAL BALANCE (States) - Result in 2005
3,000
DF
RR
2,500
AP
AC
ES
2,000
RJ
M T SP
TO
RO
1,500
MS
AM
SE
GO
RN
1,000
PI
AL
PB
BA
CE
MA
PI
AL
PB
CE PA
AP BA
RR PE
SE
TO
AC
RS
SC
RS M S M T
M G PR
RJ
PR
GO RO M G
PA
MA
500
PE
SC
SP
ES
AM
RN
0
Tax Revenue
Per Capita
Receita
Tributária
Per Capita
RDPC (Household Income Per Capita)
RDPC
(FPE atual)
(Current FPE)
DF
HORIZONTAL BALANCE (States) - Result excluding FPE
3,000
DF
2,500
DF
2,000
ES
RJ
SP
MT
1,500
AM
GO
1,000
500
AP
PI
M A PI
MA
AL
AL
PB
PB
CE
PA
CE PA
AP
RR
BA
BA RR
PE
SE
TO
AC
RN
PE
SE
TO
AC
RN
RO
GO RO
M G PR
M G PR
RJ
SC
RS
MS
SC
RS
MS MT
AM
0
Tax Revenue
Per Capita
Receita
Tributária
Per Capita
RDPC without
FPE
RDPC
sem FPE
SP
ES
HORIZONTAL BALANCE (Municipalities) - Result in 2005 - Paraíba
1400
1200
1000
800
600
400
200
0
Own Revenue
(per capita)
Receita
Própria
(per capita)
RDPC (Current
FPM)
RDPC
(FPM Atual)
HORIZONTAL BALANCE (Municipalities) - Result in 2005 - Paraíba
1400
1200
1000
800
600
400
200
0
Own Revenue
(per capita)
Receita
Própria
(per capita)
Total Available
Revenue
(without (sem
FPM) FPM)
Receita
Total
Disponível
Alternatives for Participation Funds
1 – Unfreezing FPE:
• Makes distribution dynamic;
Would a dynamic redistributive flow (Return to CTNNational Tax Code) properly fulfill the role of mitigating
imbalances in spending capacity?
HORIZONTAL BALANCE - Return to CTN
3,000
DF
DF
RR
2,500
AC
2,000
AP
1,500
1,000
BA
PI
500
RO
TO
MA
MA
PI
AL
PA
PB
CE
PA
PB
CE
AL
BA
PE
PE
RN
RN
SE
TO SE
RO
AP AC
GO PR
GO PR
AM SC
SC
M G AM
MG
RS
RS
M T SP
SP
MS MT
MS
RR
0
RDPC sem
without
FPE
RDPC
FPE
RDPC (Descong.
(Unfreezing2)
2)
RDPC
RJ
RJ
ES
ES
Alternatives for Participation Funds
2 – Equalization Funds:
• Definition:
Resource distribution mechanism intended to promote horizontal
balance (spending capacity per capita) among the Entities of a
Federation.
• Principles:
• Open Account
X Closed Account
• Potential Revenue X Actual Revenue (Tax Effort)
• Definition of a REFERENCE VALUE - VR
EQUALIZATION FUNDS
•Equalization Model Analyzed
• Closed Account (FPE/FPM – 2005);
• Actual Revenue;
• Reference Value:
• Mathematical / statistical method (Mean + Standard Deviation);
• Exclusion of Extremes (Mean + or - Standard Deviation);
• Distribution Rules:
• 90% Equalization and 10% Tax Effort;
• All Federated Entities below VR participate in equalization;
• Distribution proportional to resources needed to reach VR;
• All participate in the distribution of the tax effort share.
EQUALIZATION FUNDS
ADVANTAGES:
• Flexible system, which adapts to tax, social, and economic changes;
• High technical flexibility;
• Its main objective is to equalize the available revenue per capita, thus
promoting horizontal balance;
• Dynamic system;
• It works as an integration mechanism for the entire revenue
appropriation system;
• It gets the best results from the point of view of horizontal balance in
spending capacity of Federated Entities (Available Revenue per Capita).
HORIZONTAL BALANCE (States) - FPE Distortions
3,000
DF
RR
2,500
AP
AC
ES
2,000
MT
TO
MS
RO
1,500
AM
SE
RN
1,000
PI
AL
MA
500
MA
PI
AL
PB
PA
PA
PB
CE
BA
BA
RO
PE
PE
RN
TO SE
AP AC
GO PR
GO PR
SC
VR
RS
MG
MG
RR
0
RDPC
FPE)
RDPC(Current
(FPE atual)
RJ
MT
CE
RDPC
FPE
RDPCwithout
sem FPE
SP
VR
HORIZONTAL BALANCE (States) - Equalization (values - 2005)
3,000
DF
2,500
2,000
SP
RJ
ES
MT
1,500
1,000
SC
M A PI
500
MA
PI
AL
AL
PA
PA
PB
PB
CE
BA
PE
RN
TO SE
AP AC
BA
PE
RN
TO SE
AP AC
RR
PR
RO GO
GO PR
RO
RS
MS
M G AM
MG
RR
CE
0
RDPC without
FPE
RDPC
sem FPE
RDPC (Mod. 6)
VR
VR
HORIZONTAL BALANCE (States) - Equalization (leveraged)
3,000
DF
2,500
2,000
SP
RJ
ES
MT
1,500
M A PI
AL
PA
PB
CE
BA
PE
RN
TO SE
1,000
BA
500
MA
PI
AL
PA
PB
PE
RN
TO SE
AP AC
AP AC
RR
RO GO PR
GO PR
RO
MG
SC
RS
MS
AM
MG
RR
CE
0
RDPC without
FPE
RDPC
sem FPE
RDPC (Mod. 6)
VR
VR
HORIZONTAL BALANCE (Municipalities) - FPM Distortion - Paraíba
1400
1200
1000
800
VR
600
400
200
0
RDPC
RDPC(without
(sem FPM)
FPM)
RDPC
RDPC(Current
(FPM FPM)
Atual)
Reference
Valor
de Value
Referência
HORIZONTAL BALANCE (Municipalities) - Equalization - Paraíba
1400
1200
1000
800
VR
600
400
200
0
RDPC
RDPC(without
(sem FPM)
FPM)
RDPC
RDPC(Equalization)
(Equalização)
Reference
Valor
de Value
Referência