Description:

Ricardo Dahis (Northwestern University) - "Development via Autonomy and Funds: Evidence from Brazil"

Abstract: Countries may promote regional development by allowing localities to self-select into emancipation and by providing intergovernmental grants to those who split. In large countries, where multiple districts exist within administrative units, the net benefits of splitting into a new unit may be largest for those that are physically isolated, rural, and poor. This paper tests this idea in the context of Brazil, where a window of opportunity between 1988-96 generated an increase of 24% in the number of municipalities. We first show that districts requesting to split are on average smaller, more rural and poorer than the rest of the country. Second, using as control group the districts that request to split but have their case denied, we show that splitting causes increases in agglomeration and night luminosity for new municipalities, but no effects on remaining districts. At the municipality level, splits cause (1) a spike in local capital investment, (2) steady growth in the bureaucracy size, (3) improvements in education and public services provision. Finally, we also estimate and discuss returns to fiscal investment via an IV exercise.