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Local Public Investment Drivers in Peru

Author

Listed:
  • Alvaro Jimenez
  • Christian Merino
  • Juan Carlos Sosa

    ( Consejo Fiscal del Perú)

Abstract

Around half of Peru’s public investment is made by local governments. Through the estimationof a dynamic panel data model for 1796 local governments between 2010 and 2018, we find thatthe most important drivers for local public investment are: (i) availability of funding sources,especially those associated to non-renewable natural resource revenues; (ii) variables associatedwith each local government’s capacity to plan, budget and execute public investment; and (iii)political budget cycle effects, especially during the year following local elections. Furthermore, weextend our analysis by differentiating between local governments with reelected and non-reelectedauthorities, and by grouping local governments according to their economic size. Most of ourresults are shown to be robust across different specifications. Results from this paper can be usedas a starting point to design mechanisms that make public investment more stable and predictablein a context where reelection banning can further deepen public investment’s fall.

Suggested Citation

  • Alvaro Jimenez & Christian Merino & Juan Carlos Sosa, 2020. "Local Public Investment Drivers in Peru," Revista Economía, Fondo Editorial - Pontificia Universidad Católica del Perú, vol. 43(86), pages 57-78.
  • Handle: RePEc:pcp:pucrev:y:2020:i:86:p:57-87
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    File URL: http://revistas.pucp.edu.pe/index.php/economia/article/view/22814/21914
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    More about this item

    Keywords

    Public investment; Subnational governments; Political budget cycles.;
    All these keywords.

    JEL classification:

    • H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • R53 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Public Facility Location Analysis; Public Investment and Capital Stock

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