Local fiscal fragility, state capacity, and mortality rates during the COVID-19 pandemic: evidence from Brazilian municipalities

This paper investigates how the fiscal fragility of Brazilian municipalities contributed to the variation in mortality rates during the 2020 pandemic of COVID-19. We find that municipalities with greater fiscal fragility, defined as a budget constraint to increase municipal public spending in the short term, had significantly higher mortality rates. The results vary according to the intensity of fiscal fragility and some local factors, such as inequality or proportion of elderly people. In addition, the impact of fiscal fragility is mainly driven by the fiscal liquidity constraints of the municipalities. To explain the relationship between mortality rates and fiscal fragility, we investigate whether the fiscal constraint also affected the response of local governments to the pan- demic. Municipalities with fiscal fragility exhibit lower total and health spending per capita. As a consequence, municipalities without fiscal fragility increased the capacity and quality of hospital care compared to municipalities with fiscal fragility. We found no evidence that fiscal fragility affected the ability of municipalities to implement social mobility policies. These results highlight the importance of fiscal space in the local response to the COVID-19 pandemic.