CDEP-CGEG WORKING PAPER NO. 89

Pull Up a Chair: Municipal Council Size and Local Taxes in Brazil

Evan Plous Kresch, Rodrigo Schneider, Henrique Veras de Paiva Fonseca, & Meredith Walker

Abstract:

Does legislative size affect the diversity of political representation and a government’s attitude toward taxation? To answer this, we exploit a Brazilian reform that allocated the number of seats on municipal councils based on population thresholds. Using a regression discontinuity design, we find that councils with an additional member have greater political diversity, consistent with Duverger’s Law. Larger councils have significantly higher tax revenues, with this increase being driven by a less salient form of tax - on services - as compared to property taxes. More diverse councils use the increased tax revenue on “pro-social” public goods: health, housing, and social assistance.

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