THE RELATIONSHIP BETWEEN AGRICULTURAL PRODUCTION AND MUNICIPAL TAX REVENUE IN BRAZIL

Abstract

This study proposes an analysis of the interaction between agricultural production and tax revenue in Brazilian municipalities. Brazilian municipalities can collect taxes on agricultural production, such as the Service Tax (ISS), and indirectly, through increases in the income of their residents, boost revenue through other tax sources. Thus, the research aims to understand how agricultural activity influences tax revenue at the municipal level, considering the economic dynamics of agricultural production. Therefore, the objective of this study is to identify the correlation between agricultural production and tax revenue in Brazilian municipalities. To achieve the proposed objective, a stochastic model was considered, allowing for the analysis of this relationship. By exploring this relationship through other variables included in the model, the study aims to contribute to the understanding of the factors that impact tax revenue from agricultural production and its implications for municipal development in Brazil. Through a robust quantitative analysis, a statistically significant correlation was identified between them. The results indicate that, on average, every thousand reais produced in the municipal agricultural GDP generates between five and seventeen reais in municipal taxes, depending on the proposed model specification. Specifically, it was observed that municipalities with higher agricultural production tend to present higher tax revenue, highlighting the importance of this sector for municipal finances. The conclusion emphasizes that enhancing agricultural production could significantly bolster municipal tax revenues, thus playing a crucial role in local financial health and development.