Budgetary Dependency and Public Debt: Key Drivers of investment expenditure for Brazilian states

Abstract

This article investigates the relationship between investment expenditure and the degree of budgetary dependency among Brazilian states over the period 2001–2018. The central hypothesis is that the level of budgetary dependency generates heterogeneous effects on investment expenditure. A panel threshold model is employed to test this hypothesis. The results indicate nonlinear dynamics in the relationship between investment expenditure and budgetary dependency: at high levels of net funded debt, an increase in budgetary dependence—or a reduction in budgetary autonomy—is associated with a decline in investment expenditure.