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Subnational fiscal sustainability, risk sharing and “fiscal fatigue” in Colombia

Author

Listed:
  • Christian Daude

    (Development Bank of Latin America (CAF))

  • Christine de la Maisonneuve

    (Organisation for Economic Cooperation and Development (OECD))

Abstract

Colombia has engaged in a sustained process of fiscal decentralisation over the past decades. This paper analyses three aspects of fiscal performance for Colombia’s departments. First, it studies the sustainability aspects of subnational finances by estimating a fiscal reaction function. Evidence is presented that the current framework is conducive to fiscal sustainability, especially after the reforms in the late 1990s and early 2000s. Second, the paper analyses the impact of transfers and oil and mining royalties and the effort to raise own tax revenues at the departmental level. Overall, there is little evidence of a negative effect of transfers from the central government on departmental tax revenue, the so-called “fiscal fatigue”. Finally, the paper presents evidence of a limited degree of risk sharing of departmental idiosyncratic shocks, as transfers from the central government are mostly pro-cyclical.

Suggested Citation

  • Christian Daude & Christine de la Maisonneuve, 2016. "Subnational fiscal sustainability, risk sharing and “fiscal fatigue” in Colombia," Hacienda Pública Española / Review of Public Economics, IEF, vol. 219(4), pages 137-160, December.
  • Handle: RePEc:hpe:journl:y:2016:v:219:i:4:p:137-160
    as

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    References listed on IDEAS

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    More about this item

    Keywords

    subnational finances; fiscal fatigue; risk sharing; transfers; royalties; fiscal reaction function;
    All these keywords.

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations

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