Local Fiscal Resilience to Recessions: Evidence from Brazilian Municipalities

This paper examines the impact of the 2014–2016 Brazilian recession on the fiscal resilience of municipalities. We utilize a database compiled by IPEA to conduct a panel analysis encompassing all 5,568 Brazilian municipalities to estimate the impact on total, current, capital, and own revenues, as well as a decomposition by each municipal tax. Our results reveal a significant negative effect on revenues across all municipalities, with notable variations based on economic structure and municipal characteristics. When segregating by main economic activities, service-dominated municipalities experienced the most substantial revenue declines, followed by those centered on agriculture, industry, and government. Additionally, more populous and wealthier municipalities demonstrated greater fiscal resilience during the recession, suggesting that economic diversification functions as a buffer against economic crises. These findings have important implications for public finance planning and targeted fiscal policies that account for local economic structures.