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Abstract
The evaluation of public policy and the solution of the ever present fiscal problems of local governments requires the evaluation of the local fiscal capacity. We consider the case of Rio Grande do Sul state where 2/3 have a primary fiscal deficit. We propose a revenue function model for the years 1990-1994. There is an important role of intergovernamental transfers to the measurement of a fiscal effort index. We identify that there may significant scope for revenue increase in property taxes (collected by local governments in Brazil), but the transfers cannot be held responsible for the low fiscal effort, contrary to previous resultsfor state governments.
Key words: Fiscal Effort, fiscal federalism, stochastic frontier production function models.
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