Brazil's subnational fiscalframework has remained a source of unabated controversydespite its relative stability over the past decade. Theobjective of this study is to evaluate the nature and impactof recent and expected changes to Brazil's subnationalfiscal framework in light of these debates. Morespecifically, this work has focused on recent and proposedchanges to: 1) the Tax on Goods Circulation, Communicationand Inter-municipal and Inter-state Transportation Services(ICMS); 2) the State Participation Fund (FPE) as well as thetransfers from oil and mining royalties; and 3) thesubnational debt and borrowing framework. These three broadareas are precisely the ones that are the center of thecurrent debate on Brazil's subnational fiscalframework. In order to achieve the proposed objective, threebackground papers were commissioned, each covering one ofthe issues outlined above. The main value-added of thisstudy is an examination-and an attempt at a quantificationof the impacts of the changes underway in these threedimensions of Brazil's intergovernmental fiscalframework. The remainder of this synthesis report isorganized as follows. Section two provides a brief overviewof how Brazil's subnational fiscal framework currentlyworks. Section three describes the ongoing efforts to reformBrazil's subnational fiscal framework and points to theadvantages of a more coordinated approach over a piecemealone. Section four discusses the expected fiscal impact onsubnational governments of the most likely reform scenarios.Section five concludes. Finally, the amended proposal alsokept the original provisions regarding the validation ofpast tax incentives unchanged. It included a mandate forpast tax incentives to be approved by state legislative andto be disclosed at the official Gazette. The main change wasthe creation of a provision to safeguard the existing taxincentives until their expiration or 2033, whichever comes first.
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