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Does decentralization increase responsiveness to local needs? - evidence from Bolivia

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Faguet, Jean-Paul

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Abstract

Significant changes in public investment patterns - in both the sectoral uses of funds, and their geographic distribution - emerged after Bolivia devolved substantial resources from central agencies, to municipalities in 1994. By far the most important determinant of these changes are objective indicators of social need (for example, education investment rises where illiteracy is higher). Indicators of institutional capacity, and social organization are less important. Empirical tests using a unique database show that investment changed significantly in education, agriculture, urban development, water management, water and sanitation, and possibly health. These results are robust, and insensitive to specification. As the smallest, poorest municipalities invested newly devolved public funds in their highest priority projects, investment showed a strong, positive relationship with need in agriculture, and the social sectors. In sectors where decentralization did not bring about changes, the central government had invested little before a994, and the local government continued to invest little afterward. These findings are consistent with a model of public investment, in which local government's superior knowledge of local needs, dominates the central government's technical, and organizational advantage in the provision of public services.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2516.

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Date of creation: 31 Jan 2001
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Handle: RePEc:wbk:wbrwps:2516

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Keywords: National Governance; Economic Theory&Research; Banks&Banking Reform; Municipal Financial Management; Environmental Economics&Policies;

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  1. Besley, Timothy & Case, Anne, 1995. "Incumbent Behavior: Vote-Seeking, Tax-Setting, and Yardstick Competition," American Economic Review, American Economic Association, vol. 85(1), pages 25-45, March. [Downloadable!] (restricted)
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  2. Besley, Timothy & Case, Anne, 1995. "Does Electoral Accountability Affect Economic Policy Choices? Evidence from Gubernatorial Term Limits," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 769-98, August. [Downloadable!] (restricted)
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  3. Bergstrom, Theodore C & Goodman, Robert P, 1973. "Private Demands for Public Goods," American Economic Review, American Economic Association, vol. 63(3), pages 280-96, June.
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  4. Besley, Timothy & Coate, Stephen, 1991. "Public Provision of Private Goods and the Redistribution of Income," American Economic Review, American Economic Association, vol. 81(4), pages 979-84, September. [Downloadable!] (restricted)
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  5. Rubinfeld, Daniel L., 1987. "The economics of the local public sector," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 2, chapter 11, pages 571-645 Elsevier. [Downloadable!] (restricted)
  6. Timothy Besley & Stephen Coate, 1999. "Centralized versus Decentralized Provision of Local Public Goods: A Political Economy Analysis," NBER Working Papers 7084, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. Tim Besley & Stephen Coate, . ""An Economic Model of Representative Democracy''," CARESS Working Papres 95-02, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences. [Downloadable!]
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  1. Ahmad, Junaid & Devarajan, Shantayanan & Khemani, Stuti & Shah, Shekhar, 2005. "Decentralization and service delivery," Policy Research Working Paper Series 3603, The World Bank. [Downloadable!]
  2. Aragon, Fernando & Gayoso, Vilma, 2005. "Intergovernmental transfers and fiscal effort in Peruvian local governments," MPRA Paper 2108, University Library of Munich, Germany. [Downloadable!]
  3. Susan Steiner, 2005. "Decentralisation and Poverty Reduction: A Conceptual Framework for the Economic Impact," Public Economics 0508006, EconWPA. [Downloadable!]
    Other versions:
  4. Khaleghian, Peyvand, 2003. "Decentralization and public services : the case of immunization," Policy Research Working Paper Series 2989, The World Bank. [Downloadable!]
  5. Jean-Paul Faguet & Fabio Sanchez, 2006. "Decentralization’S Effects On Educational Outcomes In Bolivia And Colombia," STICERD - Development Economics Papers 47, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE. [Downloadable!]
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  6. Timothy Besley, 2005. "Political Selection and the Quality of Evidence: Evidence form South India," Working Papers id:261, esocialsciences.com. [Downloadable!]
  7. Richard M. bird, 2003. "Taxation in Latin America: Reflections on Sustainability and the Balance between Equity and Efficiency," International Tax Program Papers 0306, International Tax Program, Institute for International Business, Joseph L. Rotman School of Management, University of Toronto. [Downloadable!]
  8. Timothy Besley & Rohini Pande & Vijayendra Rao, 2007. "Just Rewards?Local Politics and Public ResourceAllocation in South India," STICERD - Development Economics Papers 49, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE. [Downloadable!]
  9. Nathalie Francken & Bart Minten & Johan F.M. Swinnen, 2005. "The Impact of Media and Monotoring on Corruptin in Decentralized Public Programs: Evidence from Madagascar," LICOS Discussion Papers 15505, LICOS - Centre for Institutions and Economic Performance, K.U.Leuven. [Downloadable!]
  10. Seemann, Miriam, 2004. "The Bolivian Decentralization Process and the Role of Municipal Associations," Discussion Paper Series 26356, Hamburg Institute of International Economics. [Downloadable!]
  11. Timothy Besley & Rohini Pande & Vijayendra Rao, 2005. "Political Selection and the Quality ofGovernment: Evidence from South India," STICERD - Development Economics Papers 44, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE. [Downloadable!]
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