Federal Coordination As a Way of Reducing Inequalities in the Universal Social Policies Funding: The Case of Brazil

In Brazil, reforms in health and education policies implemented in the 1990s were aimed at improving the programs’ designs  and optimizing available resources through new forms of financing and federal coordination. These institutional reforms brought upon new forms of intergovernmental cooperation, changes in funding rules, new incentives placed to local governments in order for them to take over and / or broaden the provision of regulated policies, according to the guidelines set by the federal government.

The implementation of the reforms required the construction of different strategies in order to ensure the expansion of the efficacy of such initiatives and the adherence of subnational governments. Among the regulatory mechanisms used are: revenues’ earmarking; imposition of minimum levels of spending; creation of specific funds to finance the policy; transfers conditioned to the offering of programs; establishment of national standards for local implementation of these programs and the requirement of municipal resource counterparts. To introduce these measures, changes were made to the legislation (constitutional amendments, supplementary laws and norms issued by the ministries), according to the necessary institutional degree to ensure the achievement of established goals.

The regulated policies have a universal character, whose competence towards  provision is shared by the three levels of government (federal, state and municipal governments). The new rules for the financing of these policies imposed conditions for receiving federal resources linked to the provision of selected programs, so that they were run locally, albeit following centrally defined guidelines.

This paper analyses, first, institutional and federal aspects of the reforms in education and health policies, emphasizing the mechanisms used and the changes needed in the legal framework. Afterwards, it examines whether the new rules and the incentives introduced resulted in a more equitable distribution of per capita spenditure by municipal governments in education and health policies, measured by the Gini coefficient.

The unit of analysis is the Brazilian municipality. This option is justified by the growing importance of the direct relationship between the Union and municipalities and because municipal governments have the principal responsibility of offering the policies studied here. The timeframe's parameter is the operating period of those policies (1998-2006), whose sources are the FINBRA database (Finance of Brazil), produced by National Treasury, and the statistics provided by the Ministries of Education and Health.

The results of this study show that it was possible to direct more resources to the regulated policies and, at the same time, reduce the horizontal inequalities in the education and health municipal spenditure. Resources from specific funds (Fundef / Fundeb) and conditional transfers by SUS (PAB fixed and variable) started to be distributed based on criteria linked to the policies, which are independent from the revenue capacity of each municipality and are conditioned exclusively by the local provision of those policies, whose growth was very significant in this period.