Banca de DEFESA: JEREMIAS PEREIRA DA SILVA ARRAES

THE LIMITS OF THE FISCAL RESPONSIBILITY LAW ON PERSONNEL EXPENSES: CONTROL OR INCENTIVE TO INCREASE EXPENDITURE IN BRAZILIAN STATES AND MUNICIPALITIES?

Fiscal Responsibility Law; fiscal management; personnel expenses; fiscal sustainability; public transparency.

This study investigates the influence of the Fiscal Responsibility Law (LRF) on the management of personnel expenditures in Brazilian States and Municipalities between 1998 and 2022, analyzing whether the established limits contributed to responsible and sustainable fiscal management. The research is justified by the importance of the LRF in fiscal discipline and the controversies surrounding its impact on federative entities, especially Municipalities, which have a greater dependence on transfers from the Union. The methodology used combined bibliometric and scientometric analysis to map the scientific production on the LRF, documentary and content analysis to examine the legislative debates that underpinned the norm, interviews with parliamentarians and experts involved in its formulation, and a panel data regression. The results indicate that the LRF promoted greater transparency and fiscal discipline, but its implementation was uneven. While States demonstrated greater flexibility in adapting to fiscal rules, Municipalities faced more severe challenges. The regression showed that, despite the imposed limits, personnel expenditures increased over time, suggesting that the LRF was not able to effectively contain these expenses. Additionally, a “herd effect” was identified, in which managers began to consider the maximum percentages of the LRF as spending targets, increasing expenses up to the permitted limit. Another relevant finding was the difficulty of entities in balancing their accounts without compromising investments in essential areas. Many Municipalities resorted to outsourcing and temporary contracts to circumvent the limits of the LRF, highlighting gaps in the norm. The interviews confirmed that, despite the rigidity of the legislation, political incentives for increasing expenditures at the end of the mandate still persist. It is concluded that the LRF had a positive impact on transparency and fiscal accountability but presented limitations in effectively containing the growth of personnel expenditures. The results suggest the need for improvements, including more effective correction mechanisms for entities that exceed the limits, a clearer distinction between personnel expenditures and outsourcing, and strengthening the fiscal autonomy of Municipalities.