This report is about effectiveparticipatory budgeting in Porto Alegre. The process wasinitiated during the early years of re-democratization anddecentralization in Brazil, following the end of themilitary dictatorship in 1985. The 1988 constitutioninitiated a process of decentralization and tax reforms thatcreated the fiscal space for municipalities to make moresignificant public investment decisions. A plethora ofparticipatory governance institutions have sinceproliferated in Brazil, most importantly, municipal policycouncils and participatory budgeting bodies. TheParticipatory Budget (OP) was formally introduced in PortoAlegre under the leadership of the Workers' Party incoalition with pro-democracy social movements. Althoughinitially fraught with difficulties due to fiscalconstraints, the OP in Porto Alegre became gradually moresystematic over time. Today, the OP has a complexmethodology for organizing participation in a city of over1.4 million inhabitants, as well as for prioritizing publicinvestments based on three main criteria: unmet basic needs,population, and citizen preferences. However, the OPconstitutes one element in a broader complex system ofparticipatory governance in Porto Alegre. Findings on thepoverty and fiscal impacts of OP in Brazil suggest that OPis a participatory mechanism that has significant potentialfor pro-poor distributive impacts that lead to povertyreduction outcomes in the long run. Its ability to have apositive impact on fiscal performance is less evident.