Chapter 3. The Fiscal State

Abstract

This chapter examines the fiscal structure of the Brazilian from 1822 to 1930 to ask how the government proposed to pay for the public goods mandated in its political documents. It shows that Brazil established a century-long practice of relying on indirect taxes on the circulation of goods and services and on wealth transfers to pay for public goods. This reliance on indirect taxes increased the cost of goods and services, while their regressive nature placed the greatest fiscal burden on those with the least. Moreover, Brazil’s fiscal structure disproportionately channeled public finance to the national government, and then favored the state government, depriving municipalities of resources necessary to fulfill their extensive mandate. Finally, because taxes and fees on the local economy financed local government, the ability to investment in the quality of life to raise standards of living varied from community to community. The institutional shift from highly centralized empire when municipalities had no fiscal autonomy (1822-1930) to decentralized republic when municipalities had nearly complete autonomy (1890-1930) did not alter these fundamental characteristics. The chapter details the sources and evolution of revenue streams for the seven municipalities, demonstrating their inadequacy to satisfy local requirements of public goods investments.