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Fiscal Decentralization and the Allocation of Public Spending of Subnational Governments. The Case of Ecuador

Author

Listed:
  • Henry Aray

    (Department of Economic Theory and Economic History, University of Granada.)

  • Janeth Pacheco-Delgado

    (Technical University of Manabí)

Abstract

This article analyzes the relationship between fiscal decentralization and the growth rate of per capita public spending by subnational governments in Ecuador. A theoretical model is proposed to support the empirical strategy. Data at provincial level over the period 2001–2015 are used. The estimation results for the aggregation of subnational governments show that financial autonomy is positively correlated with the growth rates of per capita public investment and per capita current spending. However, the latter is also negatively correlated with tax autonomy. When using disaggregated data on provincial and local governments, results for financial autonomy hold in most of the cases. However, no evidence is found for tax autonomy. Evidence on a structural break following the passing of the Constitution of 2008 is also found and suggests that the Constitution has had an overall positive impact on public spending. Moreover, considering the structural break sheds light on the results found when it is not taken into account.

Suggested Citation

  • Henry Aray & Janeth Pacheco-Delgado, 2022. "Fiscal Decentralization and the Allocation of Public Spending of Subnational Governments. The Case of Ecuador," ThE Papers 22/01, Department of Economic Theory and Economic History of the University of Granada..
    • Handle: RePEc:gra:wpaper:22/01
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    File URL: http://www.ugr.es/~teoriahe/RePEc/gra/wpaper/thepapers22_01.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Subnational governments; Decentralization; Public spending; Ecuador.;
    All these keywords.

    JEL classification:

    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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