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Team: Alessandro Melo da Silva Célia Maria Silva Carvalho Edna Nazaré Cardoso Farage

FISCAL FORUM OF BRAZILIAN STATES Share of Revenue and Intergovernmental Transfers in Brazil. Team: Alessandro Melo da Silva Célia Maria Silva Carvalho Edna Nazaré Cardoso Farage Fernando de Castro Fagundes Janaína Gonçalves Jonil Vital de Souza José Carlos dos Santos Damasceno

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Team: Alessandro Melo da Silva Célia Maria Silva Carvalho Edna Nazaré Cardoso Farage

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  1. FISCAL FORUM OF BRAZILIAN STATES Share of Revenue and Intergovernmental Transfers in Brazil Team: Alessandro Melo da Silva Célia Maria Silva Carvalho Edna Nazaré Cardoso Farage Fernando de Castro Fagundes Janaína Gonçalves Jonil Vital de Souza José Carlos dos Santos Damasceno Lourdes Maria Porto Morais Luiz Márcio de Souza Mª Alzenete X. Moura Maria Roseana Soares Patrícia F. Motta Café Paula Mª Bandeira Costamilan Rivael de Aguiar Pereira Rosana Richa Salame Supervisor: Prof. Sérgio Prado (Unicamp-FGV) Co-ordination: Prof. Fernando Rezende (FGV)

  2. Objective: To analyze and discuss the National resource sharing and transfer system, aiming to identify its results, potential problems, and improvement alternatives. Focus: Spending capacity of each Federated Entity per Capita (AVAILABLE REVENUE PER CAPITA).

  3. Brazilian Resource Sharing and Transfer System: • Return Flows: • ICMS Share, Salário Educação (Education Payroll Tax), etc. • Compensatory Flows: • Kandir Law/ Aux. Exp. (Export Incentive) and IPI (Tax on Manufactured Goods) – Export. • Flows for Programs at the national level: • SUS (Unified Health System), FUNDEF/FUNDEB (Education Funds); • Redistributive Flows: • FPE (State Participation Fund) and FPM (Municipal Participation Fund).

  4. Main Role of Redistributive Transfers: • Mitigate imbalances in spending capacity between jurisdictions. Current situation: FPE FPE • Does not consider other revenues; • Frozen indexes; • Does not adjust to dynamics of tax system. FPM • Considers only population dissociated from income (interior); • Population criterion is biased for municipalities with small population.

  5. RDPC (Household Income Per Capita) (Current FPE) Tax Revenue Per Capita

  6. RDPC without FPE Tax Revenue Per Capita

  7. Own Revenue (per capita) RDPC (Current FPM)

  8. Own Revenue (per capita) Total Available Revenue (without FPM)

  9. Alternatives for Participation Funds • 1 – Unfreezing FPE: • Makes distribution dynamic; • Would a dynamic redistributive flow (Return to CTN-National Tax Code) properly fulfill the role of mitigating imbalances in spending capacity?

  10. RDPC without FPE RDPC (Unfreezing 2)

  11. Alternatives for Participation Funds 2 – Equalization Funds: • Definition: • Resource distribution mechanism intended to promote horizontal balance (spending capacity per capita) among the Entities of a Federation. • Principles: • Open Account X Closed Account • Potential Revenue X Actual Revenue (Tax Effort) • Definition of a REFERENCE VALUE - VR

  12. EQUALIZATION FUNDS • Equalization Model Analyzed • Closed Account (FPE/FPM – 2005); • Actual Revenue; • Reference Value: • Mathematical / statistical method (Mean + Standard Deviation); • Exclusion of Extremes (Mean + or - Standard Deviation); • Distribution Rules: • 90% Equalization and 10% Tax Effort; • All Federated Entities below VR participate in equalization; • Distribution proportional to resources needed to reach VR; • All participate in the distribution of the tax effort share.

  13. EQUALIZATION FUNDS • ADVANTAGES: • Flexible system, which adapts to tax, social, and economic changes; • High technical flexibility; • Its main objective is to equalize the available revenue per capita, thus promoting horizontal balance; • Dynamic system; • It works as an integration mechanism for the entire revenue appropriation system; • It gets the best results from the point of view of horizontal balance in spending capacity of Federated Entities (Available Revenue per Capita).

  14. RDPC without FPE RDPC (Current FPE)

  15. RDPC without FPE

  16. RDPC without FPE

  17. RDPC (without FPM) RDPC (Current FPM) Reference Value

  18. RDPC (without FPM) RDPC (Equalization) Reference Value

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