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De Melo, Lucas (2025) Essays on political economy: evidence from Brazil. PhD thesis, University of Nottingham.

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Abstract

This dissertation is composed of three empirical essays on public economics and mostly political economy. The first essay studies fiscal spillovers. The second essay studies the impacts of banning local party branches from forming pre-electoral coalitions. Finally, the third essay, which is my Job Market Paper, refers to firms' political connections in Brazil.

The first essay examines fiscal spillovers across Brazilian municipalities by exploiting quasi-random variation in federal transfers. Using an event study design, I test whether a jurisdiction’s sudden increase in revenue, generated by discontinuities in the allocation of central government transfers, affects the fiscal and economic behavior of its neighbors. The results show positive spillovers on neighboring municipalities’ public expenditures and local labor markets. These additional expenditures are primarily financed through federal education transfers, triggered by increases in population. The findings highlight how fiscal interdependencies and demographic dynamics can amplify the effects of intergovernmental transfers beyond their immediate beneficiaries.

The second essay investigates the impacts on local political assemblies from a Brazilian reform banning local party branches from forming pre-electoral coalitions. We confirm prior research findings of a large immediate reconciliation of local party systems with a sharp drop in the number of small, personalistic parties. We test a series of pre-registered hypotheses about subsequent consequences for party systems, parties, and individual politicians. Contrary to our predictions—reduced party system fragmentation did not forego reductions in electoral volatility or reductions in politicians’ (sky-high) rates of party-switching behaviors. We discuss why the reform seemingly failed to strengthen these important dimensions of local democracy.

The third essay, my Job Market Paper, analyzes the economic returns to political connections in Brazilian local elections, focusing not only on traditional campaign donations but also on two novel channels: firms that provide goods or services to candidates during campaigns and firm owners affiliated with parties within a coalition running for mayor. Employing regression discontinuity and event study methods around close mayoral races, we find that politically connected firms substantially increase both their likelihood of securing procurement contracts and the value of those contracts, though without corresponding gains in employment or wages. This essay contributes to the literature on political connections by documenting the emergence of indirect political connections and public procurement allocation in a context of weak institutional constraints.

Item Type:	Thesis (University of Nottingham only) (PhD)
Supervisors:	Hinnosaar, Marit Rickne, Johanna Testa, Cecilia
Keywords:	Public economics, political economy, Brazil, fiscal spillover, job market, local elections, local politics
Subjects:	H Social sciences > HJ Public finance
Faculties/Schools:	UK Campuses > Faculty of Social Sciences, Law and Education > School of Economics
Item ID:	82810
Depositing User:	DE MELO, LUCAS
Date Deposited:	11 Dec 2025 04:40
Last Modified:	11 Dec 2025 04:40
URI:	https://eprints.nottingham.ac.uk/id/eprint/82810

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