Fiscal management performance and local economic development: evidence from a large emerging economy

Abstract

PurposeThis paper provides empirical evidence regarding the effect of fiscal management performance on local economic development in an emerging economy.Design/methodology/approachThe authors performed a panel data analysis based on data from the 5,568 Brazilian municipalities from 2006 to 2015. To consider if the difference in the characteristics of the municipalities can affect the results, the authors used different samples: a total of municipalities, metropolitan, nonmetropolitan, urban and rural municipalities. Furthermore, to check the difference of the effect on economic development associated with good and bad fiscal management in the municipalities, the authors considered a sample of the 500 best and the 500 worst fiscal management performances.FindingsThe findings indicate that an improvement in fiscal management is an important strategy to stimulate local economic development. In particular, the relevance of fiscal management performance to stimulate economic development is more significant in metropolitan and urban municipalities.Originality/valueThis analysis is the first to use data that take into account all the Brazilian municipalities covering information of the 21st century. Moreover, different from the previous literature, which considered efficiency from the data envelopment analysis (DEA), the authors used a fiscal management index that allowed one to consider a time-varying fiscal performance of the Brazilian municipalities.