Fiscal equalisation in Brazil, Canada and Australia: The case of states or provinces by Constantino Cronemberger Mendes published by Ipea, IPCIG (6/2022).
“The main goal of an equalisation system is to provide fiscal and financial capacity for governments to supply satisfactory public services in line with the needs of citizens. Fiscal capacity is generally a consequence of several factors such as population size, income and the concentration of economic activities. In federated countries, the issue of fiscal equalisation involves two dimensions: from the supply side, providing adequate fiscal capacity across the various government levels; from the demand side, answering to the specific demands of local society within budget constraints.
Brazil’s primary mechanism to transfer financial resources to individual states is the State Participation Fund (Fundo de Participação dos Estados—FPE), created in the 1960s as part of the 1967/1968 tax reform. The national equalisation system consists in the transfer (in part, restitution) of resources from personal income taxes (Imposto de Renda de Pessoa Física—IRPF), corporate taxes (Imposto de Renda de Pessoa Jurídica—IRPJ), and the Tax on Industrial Products (Imposto sobre Produtos Industrializados—IPI), collected and transferred by the federal government to individual states. As stated in the 1988 Federal Constitution, the main goal is to “promote the socioeconomic balance between the Federative Units” (Art. 161, paragraph II)…”
