Freedom of Information Law and municipal investment in Brazil: causal evidence from a regression discontinuity design

Abstract

The Freedom of Information Law (LAI, in the Portuguese acronym), Law No. 12,527/2011, in force since May 2012, made it mandatory for Brazilian municipalities with more than 10,000 inhabitants to disclose information of public interest on the internet. This article estimates the causal effect of being subject to this requirement on per capita municipal investment. The empirical strategy employs a fuzzy regression discontinuity design, estimated using two-stage least squares, with a panel of municipalities covering the period from 2010 to 2016, exploiting the population threshold of 10,000 inhabitants established by Article 8, § 4, of the LAI as an instrument for the adoption of transparency mechanisms. The validity of the design is supported by a density manipulation test, pre-treatment covariate balance tests, placebo cut-offs, and an alternative kernel function. The results indicate that the LAI increased per capita municipal investment by BRL 61.00—approximately 29% of the control-group mean—with effects of BRL 85.67 on health and BRL 92.68 on education, the latter being statistically significant and robust to alternative specifications. The interpretation most consistent with the findings is that of electoral accountability: the mandatory disclosure of capital expenditure reduces information asymmetry between voters and mayors, creating incentives to increase visible investments. Similarly, alternative mechanisms, such as bureaucratic professionalisation and direct pressure from civil society, are also discussed. The article concludes that transparency rules with clearly defined eligibility criteria alter the allocative behaviour of local governments. The study provides the first causally identified evidence of the effect of the LAI on municipal investment in Brazil, moving beyond the correlational nature of the previous literature, and contributes to the debate on extending transparency obligations to smaller municipalities.