Public employment and income redistribution: causal evidence for Brazilian municipalities

Abstract

This paper examines the relationship between public employment and income redistribution in Brazilian municipalities. First, we use the requirements set forth by the Fiscal Responsibility Act as an instrument for public employment variation across municipalities. Second, our results suggest that local public employment increases income concentration instead of fostering redistribution. This result puts into perspective the model provided in Alesina et al. (J. Urban Econ. 48:219-241, 2000) where public employment can be used as device for redistributing income in the United States. This seems to be an outcome of the current public employment structure and not an explicit public policy.