Wholesale versus Within Wholesale versus Within Institution Change: Institution Change:

Pacting Governance Pacting Governance Reform in BrazilReform in Brazil

Aaron SchneiderAaron SchneiderInstitute of Development StudiesInstitute of Development Studies

April 28, 2005April 28, 2005World Bank SeminarWorld Bank Seminar

Governance ReformsGovernance Reforms

Accountability and CapacityAccountability and Capacity Change in Institutions Change in Institutions New “Rules of the Game,” new New “Rules of the Game,” new

equilibriumequilibrium Institutional change is discontinuous, Institutional change is discontinuous,

significantsignificant But how does it happen?But how does it happen?

Punctuated EquilibriumPunctuated Equilibrium

Modelling Wholesale ChangeModelling Wholesale Change

Gradually build consensus, make Gradually build consensus, make pactspacts

When actors, interests, and power When actors, interests, and power have shifted sufficiently, pass a have shifted sufficiently, pass a threshold and. . .threshold and. . .

Wholesale ChangeWholesale Change If actors, interests and power do not If actors, interests and power do not

shift enough, Within Institution shift enough, Within Institution ChangeChange

Brazil 1990sBrazil 1990s Wholesale versus Within Institution Wholesale versus Within Institution

ChangeChange Some reform processes altered Some reform processes altered

interests, changed power to form a interests, changed power to form a new consensus and pact (fiscal new consensus and pact (fiscal federalism)federalism)

Others left old pacts intact (tax)Others left old pacts intact (tax)

Kinds of ReformKinds of Reform

Both are public finance reformsBoth are public finance reforms We look for threshold breaching, We look for threshold breaching,

discontinuous, wholesale change in discontinuous, wholesale change in institutionsinstitutions• Macrosocial shift – Patrimonial Macrosocial shift – Patrimonial

democratic/Bureaucratic Authoritarian democratic/Bureaucratic Authoritarian to Liberal democraticto Liberal democratic

Politics in BrazilPolitics in Brazil

Feckless DemocracyFeckless Democracy• Demos-constraining federalismDemos-constraining federalism• SNG power over tax, personnel, BanksSNG power over tax, personnel, Banks• Weak parties, fragmented interest grpsWeak parties, fragmented interest grps

Institutional RestraintInstitutional Restraint• Strong president veto, agenda, Strong president veto, agenda,

patronagepatronage• Party discipline in CongressParty discipline in Congress

Fiscal Responsibility LawFiscal Responsibility Law

Limits on public debt Limits on public debt No bailouts across levels of No bailouts across levels of

governmentgovernment Control electoral-cycleControl electoral-cycle Transparent accounts Transparent accounts Personnel ceilingPersonnel ceiling Fiscal crimes law with administrative, Fiscal crimes law with administrative,

financial, political, criminal penaltiesfinancial, political, criminal penalties

TAX - % of GDPTAX - % of GDP

10

15

20

25

30

35

1947

1951

1955

1959

1963

1967

1971

1975

1979

1983

1987

1991

1995

1999

Year

Tax

Bur

den

(% G

DP)

Causal Process of Wholesale Causal Process of Wholesale ChangeChange

Fiscal responsibility lawFiscal responsibility law•Machiavellian manoeuvres and Machiavellian manoeuvres and

capable bureaucracycapable bureaucracy•Actors and interests breach a Actors and interests breach a

threshold, new pact and consensus threshold, new pact and consensus among democratic centre and state among democratic centre and state level eliteslevel elites

•New rules of the gameNew rules of the game•Rational administration enforcing Rational administration enforcing

fixed fiscal rulesfixed fiscal rules

Causal Process of Within Institution Causal Process of Within Institution ChangeChange

Tax reformTax reform•Machiavellian manoeuvres and Machiavellian manoeuvres and

capable bureaucracy capable bureaucracy •Still, no threshold, no new Still, no threshold, no new

consensus or pactconsensus or pact•Changes occur within old Changes occur within old

institutionsinstitutions•Increase tax but at cost of Increase tax but at cost of

efficiency and regressivityefficiency and regressivity

Causal Process ObservationsCausal Process Observations

Both involved subtle and incremental Both involved subtle and incremental shiftsshifts

Both involved high politics and Both involved high politics and capable bureaucracycapable bureaucracy

Fiscal crisis had opposite impactsFiscal crisis had opposite impacts New consensus and new pact for New consensus and new pact for

federalism – wholesale changefederalism – wholesale change Within institution change of taxWithin institution change of tax