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Subnational fiscal accounts under pressure: the effects of COVID-19 in a developing country

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  • Gerson Javier Pérez-Valbuena
  • Paula Barrios

Abstract

The consequences of the most generalized lockdowns in the recent history promptly brought the deepest falls in consumption, production and employment, and the consequent increase in poverty. So far, almost all literature has focused on the effects of the lockdowns in the private sector and the national level of the public sector, while analyses on subnational governments’ finances have been overlooked, especially in developing countries. This paper’s main purpose is to fill this gap by analyzing the particular case of Colombia with its two levels of local governments, departments and municipalities. In particular, using a difference in differences approach and a quarterly panel dataset, we identify the extent at which lockdowns affected revenues, expenditures, investments and debt service of subnational governments. The results show that local public finances faced a strong turn down, especially regarding revenues. For municipalities, the industry and commerce tax, and the property tax were reduced substantially while for departments beer, wine and liquor tax, and vehicle tax were the most affected. The effects on the expenditures are weaker and less evident, while investment showed a clear sectoral heterogeneity. **** RESUMEN: Las consecuencias de los mayores aislamientos preventivos en la historia se tradujeron en las mayores reducciones del consumo, la producción y el empleo, con el consecuente aumento en la pobreza. Hasta ahora la mayor parte de la literatura se ha enfocado en los efectos sobre el sector privado y el nivel nacional del sector público, mientras que los análisis de las finanzas de los gobiernos subnacionales han sido pasados por alto, especialmente en países en desarrollo. El propósito de este documento es llenar ese vacío analizando el caso particular de Colombia con sus dos niveles de gobierno local, departamentos y municipios. En particular, haciendo uso de diferencia en diferencias con datos de panel trimestrales, identificamos en qué medida los aislamientos afectaron los ingresos, gastos, inversión y servicio de deuda de los gobiernos subnacionales. Los resultados muestran que las finanzas públicas locales sufrieron un duro revés, especialmente en sus ingresos. En los municipios la mayor caída estuvo en el impuesto de industria y comercio y en el predial, mientras que para los departamentos fueron los impuestos al vino, cerveza y licores y el de vehículos automotores. Los efectos sobre el gasto son menos evidentes, mientras que el gasto de inversión muestra una clara heterogeneidad entre sectores económicos.

Suggested Citation

  • Gerson Javier Pérez-Valbuena & Paula Barrios, 2022. "Subnational fiscal accounts under pressure: the effects of COVID-19 in a developing country," Documentos de Trabajo Sobre Economía Regional y Urbana 20052, Banco de la República, Economía Regional.
  • Handle: RePEc:col:000102:020052
    DOI: 10.32468/dtseru.306
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    More about this item

    Keywords

    Subnational public finances; COVID-19; regional economics; finanzas públicas subnacionales; COVID-19; economía regional;
    All these keywords.

    JEL classification:

    • H12 - Public Economics - - Structure and Scope of Government - - - Crisis Management
    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations
    • R10 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General

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