From Institutional Design to Service Delivery: An Integrated Approach to Decentralization Reform in Latin America

Despite multiple waves of reform, fiscal decentralization in Latin America has produced mixed and uneven results. This paper argues that understanding the region’s persistent decentralization challenges requires moving beyond fiscal design alone to examine how fiscal arrangements interact with political incentives and administrative capacity. Through a panoramic review of the region’s experience, we identify vertical fiscal imbalances and horizontal fiscal disparities as two persistent structural challenges and examine how these constraints ultimately shape subnational governments’ ability to deliver public services effectively and equitably. Building on recent developments in fiscal federalism, we propose an integrated analytical framework to diagnose decentralization problems and inform reform priorities. Rather than prescribing a uniform package of reforms, the framework begins with the problem to be addressed, identifies the fiscal arrangements, political incentives, and administrative capabilities sustaining it, and uses that diagnosis to inform context-specific reform priorities. Importantly, integration does not require each dimension of decentralization to carry equal explanatory weight across problems or countries. Instead, the framework emphasizes their interaction and the alignment of responsibilities, resources, incentives, and implementation capabilities, with public service delivery as the ultimate test of effective decentralization.