Analysis of non-financial effects of the ICMS allocation policy for Education in Ceará

The state of Ceará has stood out for its good results in national basic Education evaluations, which the literature partly attributes to the change made in 2007 in the way ICMS (Tax on Circulation of Goods and Services) is distributed. This change began to reward municipalities with good performance in the early years of elementary Education. Despite substantial evidence attesting to the effectiveness of this legislation, the mechanisms of its functioning are not yet fully elucidated. Thus, this study investigated the non-financial effects of the policy by exploring a change in the law that included 9th-grade performance as a criterion for distribution but did not produce practical effects. A combination of the difference-in-differences model with genetic matching was used to verify whether this new change affected the performance of students in municipal schools. It was found that the “announced” change raised the scores of 9th-grade students by 1.2%, indicating that the distribution policy has effects independent of increased spending. The results remain consistent even when altering the estimation method and the control group used.