Elcio Pessoa de Souza

Type of the article: Research Article

Abstract
The flypaper effect, explained by the theory of fiscal illusion, occurs when funds transferred from other levels of government increase spending more than funds derived from local tax revenues. This study empirically analyzes the flypaper effect on the sources of funds derived from parliamentary amendments allocated to the health sector. A quantitative and descriptive approach is used, based on a panel of data from 140 municipalities in Mato Grosso, a state located in the central-western region of Brazil, covering the period from 2014 to 2024. Employing a fixed-effects panel data regression model (estimated via OLS), the study controls for unobserved, municipality-specific characteristics that remain constant over time. The analyses confirm the occurrence of the flypaper effect in the municipalities of Mato Grosso, showing that intergovernmental transfers have a greater capacity to induce health spending than own-source revenue. The results show that the fiscal stimulus generated by external resources is significantly stronger than the increase in local government revenue. On the other hand, parliamentary amendments exert a positive impact, although marginal, acting as complementary resources that do not compromise budgetary rigidity and do not serve as the main driver of expenditure expansion during the period. The relevance of this study stems from its contribution to understanding Brazilian fiscal federalism, offering valuable empirical evidence.

Acknowledgment
The author(s) would like to thank the Dean’s Office for Research (PROPesq) at the Federal University of Mato Grosso (UFMT) for the financial support provided for the publication of this article.