# Modeling tax distribution in metropolitan regions with PolicySpace

## TL;DR

This study uses an agent-based model and econometric analysis to evaluate how different municipal tax distribution rules impact quality of life in Brazilian metropolitan regions, advocating for fiscal merging.

## Contribution

It introduces a validated agent-based spatial model to compare tax distribution policies and provides quantitative evidence supporting municipal financial merging in Brazil.

## Key findings

- Progressiveness of the Municipal Participation Fund improves quality of life.
- Municipal financial merging benefits citizens' quality of life in 23 metropolises.
- Identifies more efficient fiscal distribution methods through simulation.

## Abstract

Brazilian executive body has consistently vetoed legislative initiatives easing creation and emancipation of municipalities. The literature lists evidence of the negative results of municipal fragmentation, especially so for metropolitan regions. In order to provide evidences for the argument of metropolitan union, this paper quantifies the quality of life of metropolitan citizens in the face of four alternative rules of distribution of municipal tax collection. Methodologically, a validated agent-based spatial model is simulated. On top of that, econometric models are tested using real exogenous variables and simulated data. Results suggest two central conclusions. First, the progressiveness of the Municipal Participation Fund and its relevance to a better quality of life in metropolitan municipalities is confirmed. Second, municipal financial merging would improve citizens' quality of life, compared to the status quo for 23 Brazilian metropolises. Further, the paper presents quantitative evidence that allows comparing alternative tax distributions for each of the 40 simulated metropolises, identifying more efficient forms of fiscal distribution and contributing to the literature and to contemporary parliamentary debate.