The adoption of ecological fiscal transfers: an empirical analysis

Abstract

The ecological fiscal transfers (EFT) from states to municipalities were adopted by 16 of the 26 Brazilian states since 1990s to stimulate and compensate districts for achieving some environmental goals. This study aims to understand the adoption of this economic-policy instrument by Brazilian states and argues that the vertical relations between the federal and state governments increase the EFT adoption. The hypotheses are derived from the transaction-costs politics and the institutional collective action frameworks, namely built in legislative decision-making costs and commitment costs, and are empirically tested using event history analysis for the period of 1990–2015. The conclusions point to the idea that the adoption rate increases in non-electoral years, suggesting that politicians tend to avoid conflicts during electoral years. They tend to minimize the costs related to the legislative decision-making process. Also, the coordination of the central government has the potential for facilitating the adoption of EFT. More broadly, the transaction cost-politics framework and the institutional collective action framework can explain EFT adoption partially.