Working Paper: NBER ID: w20751
Authors: Raphael Corbi; Elias Papaioannou; Paolo Surico
Abstract: We exploit a series of discontinuities, at several population thresholds, in the allocation mechanism of federal transfers to municipal governments in Brazil to identify the causal effect of municipal spending on local labor markets, using a ‘fuzzy’ regression discontinuity design. Our estimates imply a cost per job of about 8; 000 US dollars per year, mostly driven by employment in services, and a local income multiplier of around two. A currency union model with nominal rigidities and liquidity constraints implies that the stimulative effects would have been substantially smaller if local government spending was financed by local tax revenues rather than regional transfers.
Keywords: federal transfers; municipal spending; local labor markets; Brazil; fuzzy regression discontinuity design
JEL Codes: E32; E62
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Federal transfers (H77) | Municipal spending (H70) |
| Municipal spending (H70) | Local employment (J68) |
| Federal transfers (H77) | Local employment (J68) |
| Municipal spending (H70) | Public sector jobs (J45) |
| Municipal spending (H70) | Private sector jobs (J45) |
| Federal transfers (H77) | Local income multipliers (R15) |
| Local tax revenues (H71) | Local income multipliers (R15) |
| Municipal spending (H70) | Public sector wages (J45) |
| Municipal spending (H70) | Private sector wages (J39) |