The flypaper effect in the health area: An analysis of the municipalities of Mato Grosso State, Brazil

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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.

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    • Table 1. Analysis of expenditure, revenue, transfers, and amendments for the state of Mato Grosso from 2014 to 2024
    • Table 2. Analysis of the per capita variables for expenditures, revenue, transfers, and state amendments in the state of Mato Grosso for the period from 2014 to 2024
    • Table 3. Summary of results from the fixed-effects regression of models with level variables (Log-Level)
    • Table 4. M1: Classic flypaper effect test
    • Table 5. M2: Budget dependency and interaction
    • Table 6. M3: Costs asymmetry
    • Table 7. Summary of results from the fixed-effects regression (in per capita terms)
    • Table 8. M1: Confirmation of the flypaper effect and the impact of amendments
    • Table 9. M2: Interaction and budgetary dependence
    • Table 10. M3: Analysis of cost asymmetry
    • Table 11. The log-per capita models
    • Table 12. Evidence of the classic flypaper effect
    • Table 13. The marginal impact of parliamentary amendments
    • Table 14. Interaction and asymmetry tests
    • Conceptualization
      Elcio Pessoa de Souza, Paulo Sérgio Almeida-Santos
    • Data curation
      Elcio Pessoa de Souza, Paulo Sérgio Almeida-Santos
    • Formal Analysis
      Elcio Pessoa de Souza, Paulo Sérgio Almeida-Santos
    • Investigation
      Elcio Pessoa de Souza, Paulo Sérgio Almeida-Santos
    • Methodology
      Elcio Pessoa de Souza, Paulo Sérgio Almeida-Santos
    • Project administration
      Elcio Pessoa de Souza, Paulo Sérgio Almeida-Santos
    • Software
      Elcio Pessoa de Souza, Paulo Sérgio Almeida-Santos
    • Visualization
      Elcio Pessoa de Souza, Paulo Sérgio Almeida-Santos
    • Writing – original draft
      Elcio Pessoa de Souza, Paulo Sérgio Almeida-Santos
    • Writing – review & editing
      Elcio Pessoa de Souza, Paulo Sérgio Almeida-Santos
    • Supervision
      Paulo Sérgio Almeida-Santos
    • Validation
      Paulo Sérgio Almeida-Santos