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Intergovernmental transfers and fiscal effort in Peruvian local governments

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  • Aragon, Fernando
  • Gayoso, Vilma

Abstract

The purpose of this paper is to identify the causal relationship between intergovernmental transfers and fiscal effort. Empirical evidence from Peruvian municipalities supports a negative relation. The substitution effect is decreasing on the level of municipalities’ expenditure and tends to disappear for high-expenditure localities. Given this phenomenon, devolving responsibilities to sub-national governments might reduce fiscal effort and deteriorate fiscal balance especially among localities with lower fiscal capacity. A possible solution might be the inclusion of fiscal effort indicators in the intergovernmental transfer design.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 2108.

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Date of creation: Oct 2005
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Handle: RePEc:pra:mprapa:2108

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Keywords: fiscal effort; intergovernmental transfers; fiscal decentralization; local taxation;

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  1. Fisman, Raymond & Gatti, Roberta, 2000. "Decentralization and corruption - evidence across countries," Policy Research Working Paper Series, The World Bank 2290, The World Bank.
  2. Heckman, James J & Ichimura, Hidehiko & Todd, Petra, 1998. "Matching as an Econometric Evaluation Estimator," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 65(2), pages 261-94, April.
  3. Pranab Bardhan, 2002. "Decentralization of Governance and Development," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 16(4), pages 185-205, Fall.
  4. Faguet, Jean-Paul, 2001. "Does decentralization increase responsiveness to local needs? - evidence from Bolivia," Policy Research Working Paper Series, The World Bank 2516, The World Bank.
  5. James R. Hines & Richard H. Thaler, 1995. "The Flypaper Effect," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 9(4), pages 217-226, Fall.
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Cited by:
  1. Abdul Jalil, Ahmad Zafarullah & Abdul Karim, Noor Al-Huda, 2009. "Understanding Malaysian State Governments Fiscal Behavior: The Role of Intergovernmental Transfers," MPRA Paper 25188, University Library of Munich, Germany.

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