Federative arrangements and fiscal federalism: a proposal for municipal merger in Brazil

The Brazilian three-tier federative model has presented two issues that have been aggravated since the 1988 Federal Constitution: low fiscal effort in revenue collection and horizontal fiscal imbalances at the municipal level. International experience shows a relatively common approach to addressing these problems. However, it is a solution rarely discussed in Brazil: federative rearrangement through municipal amalgamations – that is, the systematic merger of municipalities. This article proposes municipal amalgamations that simultaneously increase operational self-sufficiency and reduce horizontal imbalances. The study analyzes the effects of fiscal effort on the self-sufficiency of municipalities when a merger model is applied to maximize the average municipal fiscal effort. The results point to a new scenario: a 70% reduction in the total number of municipalities, a 40% increase in collection effort, and a 36% increase in operational self-sufficiency.