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Wholesale versus Within Institution Change: Pacting Governance Reform in Brazil

This article examines the process of wholesale and within institution change in Brazil's governance reform. It explores the factors that lead to the formation of new consensus and pacts, as well as the impacts of these changes on public finance reforms. The study analyzes the causal processes of wholesale change through the fiscal responsibility law and within institution change through tax reform.

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Wholesale versus Within Institution Change: Pacting Governance Reform in Brazil

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  1. Wholesale versus Within Institution Change: Pacting Governance Reform in Brazil Aaron SchneiderInstitute of Development StudiesApril 28, 2005World Bank Seminar

  2. Governance Reforms • Accountability and Capacity • Change in Institutions • New “Rules of the Game,” new equilibrium • Institutional change is discontinuous, significant • But how does it happen?

  3. Punctuated Equilibrium

  4. Modelling Wholesale Change • Gradually build consensus, make pacts • When actors, interests, and power have shifted sufficiently, pass a threshold and. . . • Wholesale Change • If actors, interests and power do not shift enough, Within Institution Change

  5. Brazil 1990s • Wholesale versus Within Institution Change • Some reform processes altered interests, changed power to form a new consensus and pact (fiscal federalism) • Others left old pacts intact (tax)

  6. Kinds of Reform • Both are public finance reforms • We look for threshold breaching, discontinuous, wholesale change in institutions • Macrosocial shift – Patrimonial democratic/Bureaucratic Authoritarian to Liberal democratic

  7. Politics in Brazil • Feckless Democracy • Demos-constraining federalism • SNG power over tax, personnel, Banks • Weak parties, fragmented interest grps • Institutional Restraint • Strong president veto, agenda, patronage • Party discipline in Congress

  8. Fiscal Responsibility Law • Limits on public debt • No bailouts across levels of government • Control electoral-cycle • Transparent accounts • Personnel ceiling • Fiscal crimes law with administrative, financial, political, criminal penalties

  9. TAX - % of GDP

  10. Causal Process of Wholesale Change • Fiscal responsibility law • Machiavellian manoeuvres and capable bureaucracy • Actors and interests breach a threshold, new pact and consensus among democratic centre and state level elites • New rules of the game • Rational administration enforcing fixed fiscal rules

  11. Causal Process of Within Institution Change • Tax reform • Machiavellian manoeuvres and capable bureaucracy • Still, no threshold, no new consensus or pact • Changes occur within old institutions • Increase tax but at cost of efficiency and regressivity

  12. Causal Process Observations • Both involved subtle and incremental shifts • Both involved high politics and capable bureaucracy • Fiscal crisis had opposite impacts • New consensus and new pact for federalism – wholesale change • Within institution change of tax

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