Incentives to Efficiency in Brazilian Decentralization : The Fpm Case in Sao Paulo

The article analyzes the mechanics of FPM and the incentives produced in the context of the Brazilian fiscal decentralization. Using information and contract theory, the study concludes that this mechanism is unable to stimulate efficient municipal administration. Thus, it is proposed a new method that incorporates incentives to efficiency. Such instrument uses information about municipalities efficiency, obtained by Data Envelopment Analysis (DEA), to recalculate these transfers. Applied to the Sao Paulo's boroughs, the criterion revealed administration larger deficiencies among those with smaller population. Besides being less efficient, these municipalities face, in general, increasing returns of scales. This attests the importance of articulation and cooperation in the municipal field. The suggested mechanism not only stimulates an efficient administration, but also considers local particularities and allows progressive implantation