Lessons from Brazil's unsuccessful fiscal decentralization policy to fight COVID-19

Abstract

This manuscript investigates the unsuccessful case of the fiscal decentralization policy implemented by the Brazilian central government to help municipalities fight COVID-19. Based on quantitative analyses of data available on governmental websites, we identified that the transfer policy had ignored municipalities' risk patterns and income changes. It benefited municipalities regardless of their vulnerability and population infection risks, and many municipalities reduced healthcare expenditures funded by their revenues during the pandemic. Hence, some municipalities made a “pandemic surplus” in 2020 – a municipal electoral year. Indeed, COVID-19 killed 663,694 people in Brazil until 4 May 2022. Lessons from an unsuccessful case of response to COVID-19 help develop resilience for other crises by emerging market economies and developing countries. The findings have implications for policymakers and literature since they represent inadequate vertical coordination that followed a path dependence on traditional decentralization policies and took place in a year of municipal elections without clear spending and accountability rules.