The federal government has played an important role in the development of the Brazilian economy. However, due to the adoption of neoliberal policies - suggested by international organs - in the 1990´s, State intervention in the economy fell substantially, particularly in relation to the planning and application of regional development policies. This area, previously controlled by the central government, has gradually been replaced by initiatives from sub national spheres of government, who started creating their own development programs based essentially on fiscal incentives related to sales taxes. The use of these tools increased from the 1990´s onwards, a phenomenon known as 'fiscal war'. The aim of this study is to examine how fiscal incentives influence the industrial sector, concerning jobs, internalization and diversification of productive chains in the northeastern region of Brazil. The locational quotient is calculated based on the RAIS/MTE data, so that the industrial specialization levels in the region can be evaluated. Analysis of the data referring to the state programs makes it possible to indicate that there is a positive relationship between the increase in job offers, internalization, diversification of industrial activities and fiscal incentives. While this relationship is not strong, the fiscal war may have contributed to the industrial dynamics of the region throughout 1995-2005. Despite this, the data show that the state programs based on fiscal and financial incentives are not capable, on their own, of significantly changing the local economical dynamics, as the incentives are not the only determining factors of investor attractiveness. Thus, the importance of adopting long-lasting and structural economic measures to stimulate less dynamic areas in the country is highlighted.
Regional development policies; Sales tax; Fiscal war; Manufacturing industry; Employment
