FISCAL EFFORT, DEPENDENCE ON THE FPM AND SOCIOECONOMIC DEVELOPMENT: A STUDY APPLIED TO MUNICIPALITIES IN MINAS GERAIS

Abstract

This research sought to demonstrate the relationships between the collection effort of municipalities in Minas Gerais and socioeconomic development. To achieve this goal, first an econometric model was developed with panel data to estimate the potential tax revenue of municipalities. Then we built the tax effort index, which is obtained by dividing the revenue actually collected and the potential revenue estimated in the model. Furthermore, we also demonstrated the representativeness of the Municipalities Participation Fund (FPM) in the funding structure of municipalities, measured by dividing the FPM revenue and municipal revenue stream. After identifying the tax effort index and the level of dependence of the FPM, we sought to establish the relationship of these variables with themselves and with the Municipal Development Index FIRJAN (IFDM) used as a proxy for socioeconomic development. The results show low tax effort index and high level of dependence on FPM, especially for small and low industrialized counties. By correlating the level of dependency of the FPM with the tax effort index and the IFDM, there was a negative correlation; however, the tax effort index showed a positive correlation with the IFDM.