2026 Theses Doctoral

Essays in Transfer Systems and Development

Beneduci Caloi, Luigi

This dissertation consists of three essays. Each study how governments can design transfer systems that balance redistribution and efficiency in contexts of limited information and low state capacity---issues that are especially relevant in developing countries. The first chapter studies how central governments should allocate intergovernmental transfers between unconditional transfers and transfers conditional on local policy performance. The second chapter studies use of proxies for ``deservingness''---or tags---in the design of progressive tax and transfer systems. The third chapter investigates how revealing municipal government corruption impacts their tax revenues.


In the first chapter, Andrea Ciccarone and I study the equity-efficiency tradeoffs of conditioning intergovernmental transfers on local policy performance. While performance-based transfers incentivize local governments and generate efficiency gains, they also shift transfers from low- to high-capacity governments, creating welfare-reducing inequities. We study this equity-efficiency trade-off using a bundle of transfer reforms to Brazilian municipalities. We find that when two states tied transfers to relative educational performance, student test scores rose substantially: moving from the 25th to the 75th percentile of per capita conditional transfers increased scores by 0.16 standard deviations. However, the reform also widened funding disparities across municipalities, which translated into disparities in municipal expenditures in multiple sectors. In contrast, contemporaneous reforms to unconditional transfers had negligible effects on student outcomes. We use a simple model of optimal transfers to interpret these findings. Our results suggest that the introduction of performance-based transfers delivered large efficiency gains, limited welfare losses from inequities, and was welfare-enhancing. We find minimal evidence of multitasking distortions or score manipulation. Instead, we document improvements in the quality of education inputs and find suggestive evidence of reduced corruption.


In the second chapter, Michael Best, François Gerard, Evan Kresch, Joana Naritomi, Laura Zoratto, and I study the usage of observable proxies for deservingness (or unobserved types) in the design of tax and transfer systems, which are commonly used by governments worldwide. These tags are often imperfect, leading to misclassification and inequities among equally deserving individuals. This paper studies the efficiency effects of such misclassification in the context of the property tax system in Manaus, Brazil. We leverage quasi-experimental variation in inequity generated by the boundaries of geographic sectors used to compute tax liabilities, and a tax reform in a series of augmented boundary discontinuity designs. We find that inequity significantly reduce tax compliance, accounting for 40\% of the overall change in compliance at the boundaries. A simple model of presumptive property taxation shows how mistagging affects the optimal tax schedule. Interpreting our findings through this lens implies that optimal progressivity is around 30\% lower than without inequity responses. These results underscore the importance of inequity for public policy design, especially in contexts with limited state capacity.


In the third chapter, I exploit random corruption audits in Brazil to investigate the impact of revealing municipal government corruption on tax revenues. I show that the audits decreased, on average, the municipal tax revenues-to-GDP by 4.1 percent. The results are consistent with tax morale as the main mechanism through which these decreases occurred: (i) the decrease is larger for municipalities where the corruption revealed was higher than expected (6.3 percent) and insignificant or even positive where it was lower than expected; (ii) citizens in audited municipalities are less likely to trust their municipal government. I perform further analysis to rule out other mechanisms. The changes in tax revenue are inconsistent with changes in tax enforcement or changes in the tax base. In light of papers that highlight the benefit of corruption audits, these results underscore the trade-off and potential costs from revealing information on corruption.