SOCIAL CONTROL OF PUBLIC EXPENDITURE: THE EFFECT OF SOCIAL OBSERVATORIES MONITORING ON BRAZILIAN MUNICIPAL OUTLAYS

Abstract

This research analyzes the effect of Social Observatories' monitoring over municipal Public Administration expenditures. Ceteris Paribus, Social Observatories’ control over public spending should increase the probability of detecting inefficiencies, misuse of resources, and corruption, leading to a reduction in municipal expenditures. Nevertheless, the theory predicts circumstances that can nullify or even reverse these effects. There is no consensus in the international literature on the effectiveness of the social control of public spending strategy and, in Brazil, this theme’s empirical literature is still incipient. Thus, using agency theory and the dynamic difference-in-differences econometric approach, we tested the hypotheses that in Brazil: (i) per capita expenses of the municipal Public Administration tend to decrease when monitored by Social Observatories; (ii) the Social Observatories overlook is especially effective in small municipalities with less than 50,000 inhabitants; (iii) the effectiveness of the observatories' supervision varies between Brazilian states and (iv) observatories that operate within a network, such as those of the “Social Observatory of Brazil” Institute (OSB), are more effective in controlling public spending than the independent ones. The results suggest that the Brazilian Social Observatories are effective, that the effectiveness (at least partially) increases in small municipalities, that the interstate heterogeneity of the Observatories’ effectiveness is a reality, and that the observatories of the OSB network are not more effective than the others.