Scrutinising Brazil’s tax system to pinpoint inequality

The Hertie School took MPP alumna Giuliana Pardelli on a welcomed public policy detour that led to a PhD at Princeton University.

Giuliana Pardelli was on the way to becoming an economist. But the Hertie School took her on a public policy detour that led to Princeton University, where she is now working on a PhD in comparative politics.

Her research entails combing through municipal archives in Brazil, examining letters between local mayors and regional governors that are a century or more old. Giuliana is studying how state capacity develops at the local level, looking at tax and government spending data to evaluate the efficiency of tax collection and public spending and its impact on equality.

“I wanted to understand why inequality could be so persistent,” Giuliana explains. “The Brazilian case is particularly interesting to me, not only because I am from there, but because it is hard to attribute persistent inequality to the lack of capacity. It collects a considerable amount of taxes, but these taxes weren’t necessarily used to provide public goods historically.”

Giuliana studied economics at the University of São Paolo, followed by a master’s in economics at the Paris School of Economics. Having previously focussed primarily on monetary policy, she attended one course on political economy in Paris that led her to change direction.

"I thought it was a really interesting field that would allow me to use the economic methods and tools I had acquired to explore intriguing and consequential problems," she says.

At the Hertie School, Giuliana completed her shift from economist to political scientist. “I worked with Professor Mark Kayser who was a big influence,” she says. For Mark Kayser, Giuliana worked on a project looking a news and newspaper across time to identify sentiment in the economic news.

“Professors at the Hertie School are working on very interesting projects that students can get involved with,” she says. “They can actually learn how the concepts and theories they learned in class are applied in the real world.”

Giuliana says the Hertie School training provided her with the background she needs now to do research in her field.  “It had a very diverse perspective – from economics to political science to sociology and law, and a very intense and rigorous methodological training which also came in handy when I went on to do my own research.”

She expects to take another two years over her PhD dissertation at Princeton. She is, after all, sifting through data from 5,500 Brazilian municipalities, a task she describes as “exciting but daunting.” Her research has so far taken Giuliana to Rio de Janeiro, Brasilia, her home city of São Paolo and cities in the north of Brazil and she is planning to go to more cities in the south. “It would be amazing to go to all 5,000 municipalities, but I guess it would take me a lifetime,” she says.

One exciting finding so far is that in Brazil, the more inequality there was in the time she is researching, the more taxes were collected.

“You might find the opposite in other countries – where elites had more power, they would try to undermine the state’s ability to tax,” she says. In Brazil, however, the wealthy in comparatively well-off areas extracted taxes from other groups in society and directed these resources to finance private goals. 

“The interesting consequence is that once it is built, it tends to stay,” Giuliana explains. “So even though it might have been put in place for rent-seeking motives, it had consequences down the road that were sometimes positive for municipalities. It’s somewhat counterintuitive to say that more inequality led to better results in terms of municipal capacity.”

After her dissertation, Giuliana wants to remain in academia. The path of research she has chosen “will be a lifelong endeavour, more than just a paper,” she says. She would be interested to test the scope of her theories elsewhere at a later stage – in Europe, Africa, or even the U.S.

“State capacity is the broader thing that I am interested in,” she says. “How it gets developed, how it might derail over time, how interest groups might affect capacity building.” She hopes her work, in the long term, “will provide a better understanding of where certain malfunctions came from and why they persist.”

She is, she says, an optimist about her field. “A lot of excellent work has already been produced. That doesn’t mean you should consider that enough – you can always improve on it.”