Aggregate analysis of large municipalities in minas gerais regarding the suitability of the Fiscal Responsibility Law

Abstract

Based on planning, transparency, and control, the Fiscal Responsibility Law was developed to be one of the main regulatory instruments of public finances, aiming to improve expenditure management and to increase the liability of administrators. Thus, the present study investigates a sample constituted by large municipalities of Minas Gerais state in order to analyze the impact of this new regulation over the 1998-2005 time span, addressing the issue of limited staff expense enforced by this law. The results show that staff expenses continued to increase, but the limit of 60% in relation to Current Net Revenue was always respected, which indicates that these expenses cannot be seen as the main source for the large municipal deficits. Positive results were found for expenditure and revenue indicators; however, it was found that transfer revenues increased, thus indicating that these municipalities were relying more and more on resources from other governmental sectors.