Power to the People: The E¤ects of Participatory Budgeting on Municipal Expenditures and Infant Mortality in Brazil

Participatory budgeting, via which the common citizen is given the ability to interact with the elected politicians in the drafting of the local budget, became a popular political reform in Brazilian municipalities in the 1990s and attracted widespread attention across the world. This paper investigates whether the use of participatory budgeting in Brazilian municipalities in the period 1991-2004 has a¤ected the pattern of municipal expenditures and had any measurable impact on living conditions. I show that the municipalities that made use of this participatory mechanism favoured an allocation of public expenditures that closely matched the “popular preferences” and channeled a larger fraction of their total budget to key investments in sanitation and health services. I also …nd that this change in the composition of municipal expenditures is associated with a pronounced reduction in the infant mortality rates for municipalities which adopted participatory budgeting. This suggests that promoting a more direct interaction between service users and elected o¢ cials in budgetary design and implementation can a¤ect both how local resources are spent and associated living standard outcomes. Department of Economics and STICERD, LSE. Email: [email protected]. I am very grateful to my advisors Oriana Bandiera and Robin Burgess for support and many valuable suggestions. I thank Gerard Padro, Giacomo Cimini, Guy Michaels, Masayuki Kudamatsu and Naercio Menezes Filho for useful comments and conversations. Participants at the LSE seminars also provided helpful suggestions. Date: 12 February 2009. 1 1 Introduction Public expenditures are a powerful tool to guarantee access to essential goods and services to all strata of the society. However, systematic distortion and misallocation of public monies –more often than the lack of resources –prevent this from happening. The lack of political accountability is a key problem in much of the developing world. Traditional mechanisms of horizontal accountability, via internal audits, checks and balances or constitutional constraints, are clearly not enough to make politicians take full responsibility and provide full justi…cation for their actions and performance. Neither is electoral accountability in democratic countries: too often we see basic services failing to reach the poor even when they represent an important fraction of the electorate. Identifying mechanisms to reinforce political accountability has been a key challenge for economists (and policy makers) and the object of intense research in the political economy literature. In the developing world several innovations to improve political accountability have been put into practice. Over the last decade these have tended to be bottom-up mechanisms that imply a greater involvement and participation of citizens, the ultimate service bene…ciaries, in decision-making processes and service delivery. One of the most famous innovations was the participatory budgeting model developed in Porto Alegre, which is an alternative budgetary process that allows citizens to negotiate with government o¢ cials over the municipality’s budgetary allocation and its investment priorities. With respect to traditional budgetary practices participatory budgeting aims at improving information ‡ows between policy-makers and service users. As a consequence, it works as a commitment device from the politicians’point of view as it stimulates more frequent checks on their (publicly promised) actions by the common citizen. Despite having attracted considerable attention for the improvement in political accountability claimed to have been achieved1 and despite the fact that the participatory budgeting model spread across Brazilian municipalities in the 1990s and 2000s and was adopted in a number of other countries, no 1For the city of Porto Alegre the world Bank reports a rise in the rate of households with access to water services from 80% to 98% between 1989 and 1996, an increase in the number of children in primary schools to twice as much in the same period and even a growth in the tax revenue collected by 50% due to a higher motivation to pay taxes given the increased transparency brought along by participatory budgeting.