Abstract
The present paper assesses the impact of the size of the municipal public sector on local economic growth and the extent to which it is conditioned by different forms of political turnover. By relying on small but original dataset on municipalities of the Brazilian state of Ceará over the period 2000–2012 and by addressing both endogeneity and spatial correlation issues, we find evidence of an adverse effect of the size of public employment on local economic growth, which is moderated by higher political stability when taking the form of dynastic control. We also find that the size of public employment crowds in public investment in our sample, with this positive pattern being amplified in municipalities controlled by political dynasties where policy’s continuity is higher. Our findings therefore reject the assumption of a crowding-out effect of redistributive politics on public investment for the municipalities of Ceará. Our medium-run framework therefore suggests that political dynasties can be advantageous for local economic growth in our limited sample of municipalities. Yet, in the longer-run, the balance between the positive stabilization effects and the possible adverse effects related to corruption should be investigated by future research.
Résumé
Le présent article évalue l'impact de la taille du secteur public municipal sur la croissance économique locale et la mesure dans laquelle cet impact est conditionné par différentes formes d'alternance politique. En s'appuyant sur un ensemble de données petit mais original sur les municipalités de l'état brésilien de Ceará sur la période 2000–2012 et en abordant les questions d'endogénéité et de corrélation spatiale, nous trouvons des preuves d'un effet négatif de la taille de l'emploi public sur la croissance économique locale, qui est modéré par une plus grande stabilité politique lorsqu'elle prend la forme d'un contrôle dynastique. Nous constatons également que la taille de l'emploi public favorise l'investissement public dans notre échantillon, cette tendance positive étant amplifiée dans les municipalités contrôlées par des dynasties politiques où la continuité des politiques locales est plus forte. Nos résultats rejettent également l'hypothèse d'un effet d'éviction de la politique de redistribution sur l'investissement public pour les municipalités du Ceará. Notre cadre d'analyse portant sur un échantillon limité de municipalités brésiliennes suggère que les dynasties politiques peuvent être avantageuses à moyen terme pour la croissance économique locale. Cependant, nous recommandons que l'équilibre entre les effets positifs de stabilisation et les éventuels effets négatifs liés à la corruption à plus long terme soit étudié par des recherches futures.
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Notes
The former finding is not supported by previous evidence showing that there was no difference between the politically hired public employees and the others in the educative sector (Litschig 2008).
As underlined by Fleischer (2015), even before 2000, there was a tendency to elect former mayors who, after an "interregnum," as he puts it, took up the same local mandate. On this pattern, see also "Dinastias políticas do Brasil lançam mais de 60 candidatos nas eleições [in Congress], Folha de São Paulo, 19 de agosto de 2018. "Os últimos feudos municipais," Folha de São Paulo, 6 de novembro de 2016.
On this point, see the recent study by Nathalia Passarinho, "Mandato de pai para filho: por que sobrenome ainda deve contar nestas eleições," BBC News Brasil, 12 setembro 2018.
In 2005, it was estimated that the number of public positions that are directly filled according to criteria linked to political affiliations or alliances was as high as 20,000 for the single federal government (Ministério do Planejamento, Orçamento e Gestão). This number is probably underestimated. In its complaint filed with the Supreme Federal Court aiming at making more restrictive and better regulated the recruitment of the “cargas comissionadas,” the Brazilian Order of the Lawyers (OAB) recalled that these positions amounted 100,000 within the single Federal administration and generated expenditure worth of 3.47 billion Reais per month or 35% of the total payroll of the public service of the Union (see http://www.gazetadopovo.com.br, access on March 18, 2018).
The state of Ceara presents conditions of access to numerous, continuous, and reliable data, which is not necessarily the case in other states of the region. Moreover, the authors have accumulated a large field expertise on this Brazilian state, on its political system, and on its economy: studies have been conducted in partnership with the Federal University of Ceará, during several missions, notably on neopatrimonialism, on local productive systems, on the effects of the Bolsa Família, on the socioeconomic impacts of the policy of fighting HIV/AIDS, on the effects in the North-East region, notably Ceará, of the economic opening of the country. In addition, more than a third of the 184 municipalities/communes have been the object of field visits in the course of various cooperative research programs and in the course of different university missions.
The interpretation of low values of the patronage indicator is less straightforward as they may describe municipalities with similar numbers of absolute and net name’s turns, indistinctively of whether turnover is large or small.
Municipality’s population is not directly included as a regressor since all stock variables (GDP, public investment, and public employment) are expressed per capita. Nevertheless, municipality’s demographic structure is controlled for by the age dependency ratio.
FPM funds must be spent based on the following rule: 15% for education, 15% for health care, and the remainder is unrestricted.
Brollo et al. (2013) take advantage that federal transfers to municipal governments change exogenously according to the given population thresholds in a regression discontinuity design to identify the causal effect of larger federal transfers on political corruption and the observed features of political candidates at the municipal level. They find that larger transfers increase political corruption and reduce the quality of candidates for mayor.
The limited economic viability of many municipios and the significant impact of their creation on public finance explain that in November 2013 the President Roussef has vetoed the creation of new municipios passed by the Brazilian Congress and that were installed by the laws of Federated States concerned (Message to the Congress No. 505 of the Presidency, 11/12/2013). The justification of that refusal was very explicit: "The measure [creating new municipalities] will promote the expansion of the number of municipios in the country that will result in increased maintenance costs of its administrative structure and political representation.”.
In order to avoid multicollinearity issues, population size has been transformed as an indicative variable (Table 2).
Small and recently created municipalities are heavily dependent on federal transfers. A study of 1405 new municipalities created between 1984 and 1997 showed that 90% of them had locally generated revenues weighing only 12.3% of their overall income (Gomes and McDowell 2000). Another study showed that 80% of Brazilian municipalities had virtually no own resources in their budget (Camargo, 2003).
When endogeneity is not accounted for, as in column 1’s OLS estimation, the adverse growth impact of public employment may be offset by a reciprocal positive effect of local growth on public employment, as municipalities performing higher growth may find it easier to increase public employment by mobilizing a larger fiscal base.
Colonnelli et al. (2020) have confirmed that, in Brazil municipalities, political turnover has tended to generate high instability in the composition of local public workforce and to prompt the politically motivated hiring of less efficient public workers.
The marginal effect derived from column 4’s estimated coefficients indicates that a one standard deviation increase of the number of public employment for 100 inhabitants would lead to a .55 standard deviation decrease of the GDP per capita growth performance over the period for municipalities presenting the average level of name turn; in comparison, the same increase of the public employment ratio would lead to a .26 standard deviation loss of GDP per capita growth over the period for the municipalities standing two standard deviation below the average level of the net name turn variable.
Alesina et al. (2001) have for example established in the case of Italy that at least one-third of the central government wage bill spent in the Southern regions can be analyzed as a redistributive flow from the North.
Indeed, Le et al. (2013) provide cross-country micro-based evidence that corruption first tends to be deterred by larger public wage premium, before the latter start prompting crowding-out effects for the countries, including Brazil, standing after the income threshold of $8,842. Moreover, the system of spoils and the patterns of political corruption associated to this system in Brazil might further weaken the efficiency effect of high public wage premium.
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Rougier, E., Combarnous, F. & Fauré, YA. Political turnover, public employment, and local economic development: New empirical evidence on the impact of local political dynasties in the Brazilian “Nordeste”. Eur J Dev Res 34, 2069–2097 (2022). https://doi.org/10.1057/s41287-021-00453-6
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DOI: https://doi.org/10.1057/s41287-021-00453-6
Keywords
- Local economic development
- Municipal public employment
- Political turnover
- Public–private wage gap
- Dynastic control
- Name analysis
- Brazil