The purpose of this paper is to analyze the determinants of the fiscal balance within Brazilian states during a period of great economic instability: the decades of 1980 and 1990. Our main argument is that even within a context of fiscal adjustment, factors related to the ideological inclinations of the head of state-level executive power, to the decision-making capacity of legislative power at the state level and the relationship between the states and federal government are fundamental parameters for understanding the country's fiscal situation. The methodology we use to verify our theoretical model corresponds to economic analysis of the panel, also known as aggregate series (pooled time series - cross section analysis), which enables us to concomitantly consider space dimensions (states) and time dimensions (year). For estimating model parameters, we employ the "panel corrected standard error" method (OLS with standard error corrected) suggested by Beck and Katz for panel analyses similar to the one we present here. Our results corroborate the prediction of the importance of considering federation sub-units. Analyses that attempt to explain the performance of national macro-economic management are not able to neglect the relevance of sub-national institutions and their impact on the incentive structures of the actors who are involved in decision-making processes.
political institutions; fiscal policy; economic performance; Brazilian states; elections
