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This paper seeks to investigate the role of income‐inequality on the size of local government.

First, the paper extends the model proposed by Meltzer and Richard, allowing for spatial interaction in the redistributive in‐kind transfers from the local governments. Second, it estimates the determinants of the size in local government taking into consideration spatial dependence in the variables.

This model points that the poorer the median voter is, the higher should be the level of local public expenditures, but the spillover effect (spatial effect) in spending is undetermined. Second, using data on Brazilian states public finance, the results suggest a negative relation between expenditures (and tax revenues) and the median voter income, in favor to the model. While both public spending and tax rates exhibit negative spatial correlation (substitute goods), behavioral significance can be attached to the spatial process in public spending but not to the spatial process in the local tax rate.

The paper provides a small extension of the Meltzer and Richard model allowing for spatial interaction and contributes to the empirical debate about inequality and the size of the government presenting the results for Brazil.

The purpose of this paper is to decompose the effects of democracy and risk of expropriation on economic volatility.

The authors follow Acemouglu et al. and use settler mortality in former colonies in the seventeenth, eighteenth and nineteenth centuries as an instrument of “risk of expropriation,” in addition to a democracy index to capture institutional effects on economic stability.

The authors present empirical evidence that the economic performance of more centralized former European colonies is not more volatile than that of democratic ones, once the exogenous variation of expropriation risk across countries is included in the model

The paper investigates the role of a spectrum of different institutions on economic stability. In this sense, the paper contributes to the literature analyzing the effect of property‐rights protection, as measured by a risk‐of‐expropriation index, on the relation between democracy and economic stability.

The purpose of this paper is to characterize that the marginal social cost of public funds and to estimate the response of labor supply to these publicly provided goods, and simulate the marginal social cost of cash‐cum‐in‐kind transfers (MSCKT) for Brazil.

The paper provides a theoretical model based on Wildasin to characterize the marginal social cost of public funds. Next it estimates using instrumental variables approach the variables necessary to calibrate our theoretical model.

The marginal social cost of public funds depends on the relation between labor supply and the cash‐cum‐in‐kind transfers. Last, the simulations suggest that MSCKT can increase up to 12.4 percent if compared with cases in which is assumed ordinary independence between labor and the bundle of goods provided by the public sector.

Further panel data experiments based on municipal public finance data should be conducted in order to circumvent the agents' heterogeneity problem inherent in cross section analysis – and individuals' labor supply response could be more sensitive at this data level. Finally, such cost‐benefit analysis makes more sense when a specific project is considered and therefore its effects on the taxed good can be clearly estimated leading to a more reliable estimative of the marginal social cost of funding that project.

Governments should take the actual social cost of public policies into consideration before undertaking any new project.

The paper is useful to characterize the marginal social cost of public funds, estimate the necessary parameters and, last, to calibrate its correspondent using Brazilian data.

The purpose of this paper is to examine the existence of skill differentiation between formal and informal labor markets.

First, a theoretical model is developed under the assumption that concealment of production is increasingly costly for informal firms. Second, using data on the Brazilian self‐employed economy, two methods are utilized to compare earnings in the formal versus the informal economy: propensity score and instrumental variable (IV) methods. For the IV estimations, state‐level variables are used as instruments for individual's decisions. In addition, the effect of schooling on formality choice is analyzed.

The theoretical model implies that more productive firms tend to operate formally and the proportion of workers employed by formal firms is larger for higher skilled workers. In the empirical analysis, it is found that formal firms are more productive than informal firms, controlling for workers' characteristics, and that higher workers' skill increase the probability of formal operation, as predicted by the theoretical model.

The paper provides an original theoretical model of skill differentiation in labor markets and empirically evaluates the implications of the model.

The purpose of this paper is to investigate the role played by the geographic distance between the poor and non‐poor in the local demand for income redistribution and, in particular, to provide an empirical test of the geographically limited altruism model proposed by Pauly, incorporating the possibility of participation costs associated with the provision of transfers.

First, the authors motivate the discussion by allowing for an “iceberg cost” as participation for the poor individuals in Pauly's original model. Next, using data from the 2000 Brazilian Census and a panel based on the National Household Sample Survey (PNAD) from 2001 to 2007, the authors estimate the effect of the proximity between poor and non‐poor on the demand for redistribution.

All of the authors' distance‐related explanatory variables indicate that an increased proximity between poor and non‐poor is associated with better targeting of the programs (demand for redistribution). For instance, a one‐hour increase in the time spent commuting by the poor reduces the targeting by 3.158 percentage points. This result is similar to that of Ashworth et al., but is definitely not due to the program leakages. To empirically disentangle participation costs and spatially restricted altruism effects, an additional test is conducted using unique panel data based on the 2004 and 2006 PNAD, which assess the number of benefits and the average benefit value received by beneficiaries. The estimates suggest that both cost and altruism play important roles in the demand for redistribution and might reduce targeting in Brazil. Lastly, the results indicate that “size matters”; i.e. the budget for redistribution has a positive impact on targeting.

Our results suggest that a totally centralized supply of transfers may be more inefficient than local redistribution in terms of targeting, either due to higher participation costs or because of the eventual greater geographical distance between the national median voter and poor individuals. However, a partial role for the federal government, such as providing funds for redistribution, seems to improve targeting.

In particular, the paper provides an empirical test for the geographically limited altruism model proposed by Pauly, incorporating the possibility of participation costs associated with the provision of transfers. The authors motivate this discussion by adding the possibility of distance‐related “iceberg costs” of delivering benefits to poor individuals and show that these two effects of distance may act to lower the demand for transfers, making it difficult to distinguish between the two effects. These two effects of distance act by lowering the demand for transfers, making it difficult to disentangle the effect of altruism from the effect of cost. The authors' empirical strategy seems to allow to identify each of them and to provide a suggestion on whether it is advantageous to carry out redistribution at the local level.