For the past fifteen years, Colombia has been engaged in a grand experiment in decentralization. Since 1986, subnational government spending has increased dramatically, as the regions have assumed greater control of health and education programs and other local services, and an increasing fraction of national revenues have been earmarked for transfer to lower-level governments. This paper examines fiscal data for a large number of Colombian municipalities for the 1985-99 period. Our first goal is to describe the effects of the transfer system on horizontal balance among municipalities. By our estimates, the fiscal capacities of Colombian municipalities differ substantially, which is a major challenge to designing an effective system of decentralization. Our second goal is to draw some inferences from the data about how the current system of transfers has affected the level of local taxation and spending, and the pattern of spending across functional categories. Our data cover a period that straddles the major reform in the allocation of municipal transfers that resulted from Law 60 in 1993. This permits a more accurate assessment of the effects of transfers than has been possible in previous research.
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Paper provided by International Tax Program, Institute for International Business, Joseph L. Rotman School of Management, University of Toronto in its series International Tax Program Papers with number
0403.
Find related papers by JEL classification: O54 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - Latin America; Caribbean H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism O18 - Economic Development, Technological Change, and Growth - - Economic Development - - - Regional, Urban, and Rural Analyses
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