# **1 Introduction**

The last decades have seen a remarkable expansion in the number of subnational units across the world and their roles in providing public services (Gadenne and Singhal, 2014; Grossman and Lewis, 2014; Dahis and Szerman, 2023). As their role in service provision increased, so did their economic relevance – in Brazil, municipal procurement was equivalent to approximately 3% of GDP between 2002 and 2019, or about 25%-30% of total purchases by all levels of government – federal, state, and municipal (Thorstensen and Giesteira, 2021).

Data on local governments are often only available at an aggregate level, e.g. the total amount of purchases of goods and services, the total amount spent on health services, and the total amount of accrued liabilities. Consequently, many simple yet important questions related to the public finances of these units remain unanswered. Which are the suppliers of local governments, and what are their characteristics (e.g., size, location)? What is the share of purchases that happen through competitive tenders versus non-competitive methods? When competitive auctions take place, what is the degree of competition?

Another crucial dimension of local governments’ finances is how they execute their budgets. While aggregate commitment and spending amounts are easier to come by, we know little about the details of the budget execution. For instance, how long does it take to pay suppliers after deliveries are recognized? Is there a large variability in the payment timeliness across purchases within the same government? Do governments treat suppliers equally regarding payment timeliness? Answers to these questions can shed new light on the effectiveness of local governments and on their interaction with other economic agents. Similarly, when facing liquidity constraints, do governments prioritize the payment of some government functions at the expense of others? Payment delays impose several costs on suppliers and might affect the provision of public goods (Flynn and Pessoa, 2014). The importance of this issue is reflected in several recent regulations and initiatives that governments implemented in an attempt to shorten payment terms.<sup>1</sup> Yet, the scarcity of granular data on the stages of the budget execution renders the answers to these questions elusive.<sup>2</sup> In this paper, we introduce a new dataset on municipal public finance in Brazil (MiDES, _Microdados de Despesas de Entes Subnacionais_ ) that allows users to answer several of these questions.<sup>3</sup> We collect, clean, and harmonize microdata on public procurement and budget

> 1Examples include the QuickPay initiative, launched in 2011 in the United States; Regulation 113 of the Public Contracts Regulations, passed in 2015 in the United Kingdom; and the introduction of the Centralized Payment Platform (PPC) in 2020 in Chile.

> 2According to Potter et al. (1999): “For the fiscal economist seeking to monitor budget execution, choosing which stage(s) of the expenditure management procedure to monitor is often constrained by information availability. In principle, the data given at the verification stage may be particularly relevant because they measure the actual liability of the public entity and thus the accrued account liability. For example, if bills are verified promptly when they arrive, it allows a good measure of the potential arrears, where strict cash limits constrain the amounts available to make payments. But such information is rarely available.”

> 3The English translation of _Microdados de Despesas de Entes Subnacionais_ is Subnational Entities’ Expenditure Microdata.

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