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How do subnational governments react to shocks to revenue sources? Evidence from Argentina

Author

Listed:
  • Martin Besfamille

    (Universidad Católica de Chile)

  • Diego Jorrat

    (Universidad Loyola)

  • Osmel Manzano

    (Inter-American Development Bank / Georgetown University)

  • Pablo Sanguinetti

    (CAR-Development Bank of Latin America)

Abstract

Using the exogenous variability in intergovernmental transfers and hydrocarbon royalties, based on the fiscal regime that prevailed in Argentina from 1988 to 2003, we jointly estimate the effects that changes in these public revenues had on provincial public consumption and debt. When receiving a one-peso increase in intergovernmental transfers, provinces spent 32 centavos of each peso on public consumption and 43 on debt repayment. But when hydrocarbonproducing provinces received a one-peso increase in royalties, they used 75 centavos for debt repayment. These dissimilar reactions to revenue increases are robust to different specifications of the basic regressions. Finally, we provide two alternative explanations for them: the higher volatility of hydrocarbon royalties (relative to intergovernmental transfers) and the exhaustible nature of these revenues.

Suggested Citation

  • Martin Besfamille & Diego Jorrat & Osmel Manzano & Pablo Sanguinetti, 2021. "How do subnational governments react to shocks to revenue sources? Evidence from Argentina," Working Papers 73, Red Nacional de Investigadores en Economía (RedNIE).
    • Handle: RePEc:aoz:wpaper:73
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    File URL: https://rednie.eco.unc.edu.ar/files/DT/73.pdf
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    Cited by:

    1. Fernando Antonio Ignacio González & Maria Emma Santos & Juan Cruz Fernández, 2021. "¿Discontinuidades o continuidades políticas? Explorando sus efectos sobre el desempeño económico: el caso de la intervención federal en Santiago del Estero," Asociación Argentina de Economía Política: Working Papers 4480, Asociación Argentina de Economía Política.
    2. Cassidy, Traviss, 2017. "How Forward-Looking Are Local Governments? Evidence from Indonesia," MPRA Paper 97776, University Library of Munich, Germany, revised 01 Jun 2019.
    3. Pellegrini, Lorenzo & Tasciotti, Luca & Spartaco, Andrea, 2021. "A regional resource curse? A synthetic-control approach to oil extraction in Basilicata, Italy," Ecological Economics, Elsevier, vol. 185(C).
    4. Oyarzo, Mauricio & Paredes, Dusan, 2023. "Shocks derived from mining windfalls and horizontal transfers: Exploring the permanent income hypothesis in Chilean municipalities from a spatial competition approach," Socio-Economic Planning Sciences, Elsevier, vol. 86(C).
    5. Cassidy, Traviss, 2017. "Revenue Persistence and Public Service Delivery," MPRA Paper 114464, University Library of Munich, Germany, revised 06 Sep 2022.

    More about this item

    Keywords

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    JEL classification:

    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General
    • 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

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