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55th Congress of the European Regional Science Association: "World Renaissance: Changing roles for people and places", 25-28 August 2015, Lisbon, Portugal
In 1988, the 'new' Brazilian Federal Constitution increased municipalities? responsibilities. One of those responsibilities is to conduct spending which the main goal is population welfare. Considering the possibility of specific local welfare expenditures, individuals tend to migrate to cities with higher expenditures, consequently, that offer better life quality. In other words, tends to be a welfare migration. This welfare migration could be 'desired' if immigrants are net contributors to the tax system and 'undesired' if these individuals are poor (not net contributors), generating prejudice to municipal public coffers. Hence, economists debate that 'undesired' welfare migration could drive these municipal expenditures (targeted to meet the demand for public goods) to very low values, that is, to a race to the bottom. In the presence of that phenomenon, spatial interaction between expenditures of each municipality and neighbors? expenditures would take place. This paper seeks to analysis the evidence of the race to the bottom and welfare migration in Brazilian municipalities, in 2000 and 2010, whose main source of data is Census. For this, is used Fixed Effects model and, concomitant, Spatial Durbin Model. In welfare migration tests, immigration and low-income immigration are used as dependents variables, looking for indications of 'desired' and 'undesired' welfare migration. In race to the bottom tests the dependent variable is the sum of public spending on health, education and social assistance. In this estimation, the influences of immigration and spending neighbors on local spending are tested. Results demonstrate several interesting answers, since there is no paper in the literature that verify existence of those two phenomena to Brazil and no paper was found that makes these analyzes, using both equations: one whose dependent variable are welfare expenditures and other that the dependent variable is immigration. Results provide evidence of welfare migration. However, when analyzed separately, low-income individuals do not exhibit similar behavior and, hence, there is no evidence of 'undesired' welfare migration. Moreover, despite evidence of spatial spillovers welfare expenditures, it cannot be confirmed the existence of race to the bottom, since the municipalities do not reduce their welfare expenditure in a presence of more immigration. Finally, there is evidence that increases in immigration raises welfare spending. This result suggests that an increase in immigration can generate a bigger competition for work, and to reduce the negative effects of this competition, residents choose a government that elevate those expenditures. Then, there is in Brazil, a situation that the welfare migration motivates the formation of urban centers where public expenditures become increasingly high. Therefore, it is important to develop public policies that seeks local development in order to mitigate those migration flows that concentrate people and public expenditure in certain localities, increasing further more regional inequalities.
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