Wholesale versus Within
Institution Change:
Pacting Governance
Reform in Brazil
Aaron Schneider
Institute of Development Studies
April 28, 2005
World Bank Seminar
Governance Reforms
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Accountability and Capacity
Change in Institutions
New “Rules of the Game,” new
equilibrium
Institutional change is discontinuous,
significant
But how does it happen?
Punctuated Equilibrium
Modelling Wholesale Change
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Gradually build consensus, make
pacts
When actors, interests, and power
have shifted sufficiently, pass a
threshold and. . .
Wholesale Change
If actors, interests and power do not
shift enough, Within Institution
Change
Brazil 1990s
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Wholesale versus Within Institution
Change
Some reform processes altered
interests, changed power to form a
new consensus and pact (fiscal
federalism)
Others left old pacts intact (tax)
Kinds of Reform
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Both are public finance reforms
We look for threshold breaching,
discontinuous, wholesale change in
institutions
• Macrosocial shift – Patrimonial
democratic/Bureaucratic Authoritarian
to Liberal democratic
Politics in Brazil

Feckless Democracy
• Demos-constraining federalism
• SNG power over tax, personnel, Banks
• Weak parties, fragmented interest grps
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Institutional Restraint
• Strong president veto, agenda,
patronage
• Party discipline in Congress
Fiscal Responsibility Law
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Limits on public debt
No bailouts across levels of
government
Control electoral-cycle
Transparent accounts
Personnel ceiling
Fiscal crimes law with administrative,
financial, political, criminal penalties
25
20
15
Tax Burden (% GDP)
TAX - % of GDP
35
30
10
1999
1995
1991
1987
1983
1979
1975
1971
1967
1963
1959
1955
1951
1947
Year
Causal Process of Wholesale
Change
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Fiscal responsibility law
• Machiavellian manoeuvres and
capable bureaucracy
• Actors and interests breach a
threshold, new pact and consensus
among democratic centre and state
level elites
• New rules of the game
• Rational administration enforcing
fixed fiscal rules
Causal Process of Within Institution
Change
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Tax reform
• Machiavellian manoeuvres and
capable bureaucracy
• Still, no threshold, no new
consensus or pact
• Changes occur within old
institutions
• Increase tax but at cost of
efficiency and regressivity
Causal Process Observations
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Both involved subtle and incremental
shifts
Both involved high politics and
capable bureaucracy
Fiscal crisis had opposite impacts
New consensus and new pact for
federalism – wholesale change
Within institution change of tax