The Impact of Fiscal Incentives on The Brazilian Northeast
Harber, Richard Paul, Jr.
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https://hdl.handle.net/2142/70723
Description
Title
The Impact of Fiscal Incentives on The Brazilian Northeast
Author(s)
Harber, Richard Paul, Jr.
Issue Date
1982
Department of Study
Economics
Discipline
Economics
Degree Granting Institution
University of Illinois at Urbana-Champaign
Degree Name
Ph.D.
Degree Level
Dissertation
Keyword(s)
Economics, Finance
Abstract
Brazil's Northeast has historically been the poorest region in the country. In 1958 the Superintendency for the Development of the Northeast (SUDENE) was created to coordinate and promote the region's economic development. SUDENE's principal policy tool to increase the growth rate of the Northeast's income has been the Article 34/18 tax or fiscal incentives which were designed to attract private investment into the region. Throughout the 1960's similar fiscal incentive programs were introduced to attract resources to other regions or sectors of the Brazilian economy, resulting in a system of tax exemptions and subsidies which compete for the attentions of taxpayers and investors. Although several of the individual incentive programs have been examined in earlier research, no study has considered the effects on the Northeast's growth and development of this expansion of the fiscal incentive system.
The study's findings show that the 1967 expansion of the incentive system to include the fishing, tourism and reforestation sectors resulted in a shift of corporate deductions away from the 34/18 incentive program. Despite this shift, however, the fiscal incentive system resulted in a new flow into the Northeast of investment funds totaling over CR$ 7.2 billion which increased the Northeast's 1964 industrial capital stock by over 400%.
While showing that the incentive system's investments limited the decline of the Northeast's income share, the macroeconomic analysis identified three principal reasons for this decline: (1) the unbalanced regional income multipliers; (2) the insufficient level of non-incentive-induced investment in the Northeast relative to the rest of Brazil; and (3) the changes in the fiscal incentive system following the system's expansion.
The incentive system's investments within the Northeast have tended to worsen the region's distributional problems. The study's analysis shows that the inter-state distribution of the incentive system's investments contributed to the increased inequality of the inter-state income distribution which occurred between 1960 and 1970. Finally it is shown that the tax deduction mechanism used by Brazil's fiscal incentive system may have contributed to the increased inequality in the personal income distribution.
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