(Page 9 of 31) - Fiscal Responsibility Laws for Subnational Discipline: The Latino Experience authored by Webb, Steven.

Brazil

Political constitution. Federalism in Brazil revived with the return to democracy,

which began in 1982 with the election of governors. Democratic elections for mayors of
capital cities were held in 1985, a new congress with constitution-making authority was
elected in 1986 and completed the new constitution in 1988, and the first direct election
of the president was held in 1989. Thus the democratic transition gave legitimacy to
subnational governments before the federal level (Dias 1991; Hagopian 1996; Souza
1996). “The majority of the constitutional commission … understood that democracy, in
the area of public finance, demanded a weak federal government and strong subnational
governments. In this way constitutional reform was occupied, on one hand, with the
recovery of the powers of the legislative [branch] and financial autonomy of states and
municipalities” (Afonso 1994). This view reflected the political background of most of
the delegates: many of the senators were former governors and most deputies were
former mayors.

Although the president has considerable power on paper in the constitution, his

power in practice is circumscribed by the difficulty of marshaling party support. Parties
are highly fragmented and lack discipline at the national level. Party decisions are
determined more by what goes on in their own states than by what goes on in national
politics. State loyalties lead politicians to coalesce in support of projects that will benefit
their own state, regardless of their party. State governors command the loyalty of federal
deputies, because their support is more useful than the support of the president.
Legislative electoral lists are open (the party does not decide the number or priority of the
candidates), unlike Argentina, so every candidate must compete against others from his
party, depriving party leaders of a potential means for discipline. Few states have strong
party machines to control this. Deputies also change parties frequently while in office,
with 40 percent doing so in 1987–90 (Ames 1995a, 1995b). Because of their influence
over national deputies and senators from their state, regardless of party, governors have
the power to thwart or facilitate presidential designs, and they often use this power to
demand special fiscal treatment for their states. The equal representation per state in the
Senate (not unusual) combined with large minimum allocations of deputies per state to
give the low-population states much greater representation per capita than the large ones.
This was compounded by an absolute limit on deputies per state that blatantly penalized
the citizens of Sao Paolo. (The preceding paragraphs draw on Dillinger and Webb 1999.)

Fiscal federal structure. Not surprisingly, given the strong representation of

SNGs in the 1986 congress, the constitution gave the SNGs a lot of authority and
resources. The states got the best tax base—the VAT—and also got strong claims to
revenue-sharing transfers out of the federal taxes. Neither constitution nor subsequent
legislation, however, defined the majority of spending obligations of the SNGs, leaving
them with considerable latitude to decide which responsibilities would be politically
advantageous to take on.

The vertical imbalance of intergovernmental relations in the constitution was

matched with important horizontal imbalances between the states. In some ways the