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More Than You Can Handle: Decentralization and Spending Ability of Peruvian Municipalities

Author

Listed:
  • Norman V. Loayza
  • Jamele Rigolini
  • Oscar Calvo-González

Abstract

type="main" xml:id="ecpo12026-abs-0001"> This article builds on a comprehensive dataset for Peru that merges municipal fiscal accounts with information about municipalities’ characteristics such as population, poverty, education, and local politics to analyze the leading factors affecting the ability of municipalities to execute the allocated budget. According to the existing literature and the Peruvian context, we divide these factors into four categories: the budget size and allocation process; local capacity; local needs; and political economy constraints. While we do find that all four factors affect decentralization, the largest determinant of spending ability is the adequacy of the budget with respect to local capacity. The results confirm the need for decentralization to be implemented gradually over time in parallel with strong capacity building efforts.

Suggested Citation

  • Norman V. Loayza & Jamele Rigolini & Oscar Calvo-González, 2014. "More Than You Can Handle: Decentralization and Spending Ability of Peruvian Municipalities," Economics and Politics, Wiley Blackwell, vol. 26(1), pages 56-78, March.
    • Handle: RePEc:bla:ecopol:v:26:y:2014:i:1:p:56-78
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    File URL: http://hdl.handle.net/10.1111/ecpo.2014.26.issue-1
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    Cited by:

    1. Makarin, Alexey & Piqué, Ricardo & Aragón, Fernando, 2020. "National or sub-national parties: Does party geographic scope matter?," Journal of Development Economics, Elsevier, vol. 146(C).
    2. Daza, Brian, 2024. "Government Spending Multipliers and Distribution of Commodity Booms in the Spatial Economy," Working Papers 690, Research Seminar in International Economics, University of Michigan.
    3. Ryota Nakatani & Qianqian Zhang & Isaura Garcia Valdes, 2022. "Fiscal Decentralization Improves Social Outcomes When Countries Have Good Governance," IMF Working Papers 2022/111, International Monetary Fund.
    4. Corral, Leonardo & Henderson, Heath & Miranda, Juan José, 2016. "Evidence from a Natural Experiment on the Development Impact of Windfall Gains: The Camisea Fund in Peru," IDB Publications (Working Papers) 7520, Inter-American Development Bank.
    5. Omar Zambrano & Marcos Robles & Denisse Laos, 2014. "Global boom, local impacts: Mining revenues and subnational outcomes in Peru 2007-2011," IDB Publications (Working Papers) 85133, Inter-American Development Bank.
    6. Polo y La Borda Cavero, Alicia & Cáceres Cabana, Yezelia & Malone, Aaron & Quinta Soto, Ronaldo, 2023. "Musical chairs: Analyzing the evolution of stakeholders in Peru's mining sector through dialogue tables," Resources Policy, Elsevier, vol. 81(C).
    7. Loayza, Norman & Mier y Teran, Alfredo & Rigolini, Jamele, 2013. "Poverty, Inequality, and the Local Natural Resource Curse," IZA Discussion Papers 7226, Institute of Labor Economics (IZA).
    8. Meng, Xia & Ding, Tao & Wang, Haisen, 2023. "Incentives for local government expenditures on people’s livelihood: the role of high-speed rail," Socio-Economic Planning Sciences, Elsevier, vol. 89(C).
    9. Anila Channa & Jean-Paul Faguet, 2016. "Decentralization of Health and Education in Developing Countries: A Quality-Adjusted Review of the Empirical Literature," The World Bank Research Observer, World Bank, vol. 31(2), pages 199-241.
    10. Livert, Felipe & Weaver, Julie Anne & Bordón, Paola, 2025. "Rewarding performance in disaster response: Evidence from local governments in Latin America," World Development, Elsevier, vol. 188(C).
    11. Aragón, Fernando M. & Winkler, Hernan, 2023. "The long-term impact of a resource-based fiscal windfall: Evidence from the Peruvian canon," Resources Policy, Elsevier, vol. 87(PA).
    12. Pique, Ricardo, 2019. "Higher pay, worse outcomes? The impact of mayoral wages on local government quality in Peru," Journal of Public Economics, Elsevier, vol. 173(C), pages 1-20.
    13. Bellofatto, Antonio Andrés & Besfamille, Martín, 2018. "Regional state capacity and the optimal degree of fiscal decentralization," Journal of Public Economics, Elsevier, vol. 159(C), pages 225-243.
    14. Diether Beuermann & Maria Amelina, 2014. "Does Participatory Budgeting Improve Decentralized Public Service Delivery?," IDB Publications (Working Papers) 87095, Inter-American Development Bank.
    15. Fernando Aragón & Ricardo Pique, 2020. "Better the devil you know? Reelected politicians and policy outcomes under no term limits," Public Choice, Springer, vol. 182(1), pages 1-16, January.
    16. Gabriel Natividad, 2022. "Decentralizing investment: Evidence from municipal organization after close elections," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 31(3), pages 734-761, August.
    17. Armey, Laura E. & McNab, Robert M., 2018. "Expenditure decentralization and natural resources," The Quarterly Review of Economics and Finance, Elsevier, vol. 70(C), pages 52-61.
    18. Diether W. Beuermann & Maria Amelina, 2018. "Does participatory budgeting improve decentralized public service delivery? Experimental evidence from rural Russia," Economics of Governance, Springer, vol. 19(4), pages 339-379, November.

    More about this item

    JEL classification:

    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations
    • H83 - Public Economics - - Miscellaneous Issues - - - Public Administration
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development

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