Municipal Secession and Transfer Incentives in Brazil
研究了巴西市政参与基金（FPM）的转移支付公式是否激励了市政分离，发现新设市政更依赖转移支付、运营支出占比更高，且分离行为在州层面可能产生财政反效果。
ABSTRACT The optimal number of subnational units within a country remains a debated issue, with no clear theoretical or empirical consensus. Institutional incentives often drive the expansion or reduction of jurisdictions for political, fiscal, or administrative purposes. This article investigates whether the design of Brazil's Municipal Participation Fund (FPM) encourages municipal secession through its transfer formula. We analyze rent‐seeking behavior, where actors engage in secession to access guaranteed transfers, and the flypaper effect, where transfers stimulate more spending than equivalent own revenues. Using multiple data sources, counterfactual simulations, and econometric analysis, we demonstrate that post‐1988 municipalities are typically smaller, more reliant on transfers, and allocate a larger share of spending to institutional operations rather than service delivery. Fragmentation can also be fiscally counterproductive at the state level, as extensive secessions reduce eligibility for the FPM‐Reserva, whereas the flypaper effect remains stronger in newer jurisdictions, sustaining pressures to expand transfer shares. Together, these findings strengthen the case for reforming FPM allocation rules.