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Decentralization in Colombia

Listed author(s):
  • Alberto Alesina


  • Alberto Carrasquilla


  • Juan José Echavarría Soto


In the 1990’s descentralization in Colombia, a process which had begun a decade earlier, was sharply accelerated. The percentage of current Central Government revenues that are automatically transferred to the regional governments quickly jumped from about 20% to over 40%. Many analysts attribute the sharp fiscal deterioration experienced in the country to this decision. Regional governments, indeed, accumulated substantial amounts of debt and currently face serious financial difficulties. This paper is policy oriented. After a discussion of the central issues associated with descentralization in general, we turn to the specific case of Colombia. Our analysis highlights three aspects: (a) the rules that govern how a particular region’s transfers are defined. (b) the rules that govern how these resources must be spent and (c) the rules governing a regional government’s ability to issue debt. Rules governing how a region receives transfers from the central government have several problems. Firstly, they are not linked to any explicit and simple consideration of its contribution to total central government revenues, they lack simple redistributive criteria (from richer to poorer regions) and they do not sufficiently reward regional fiscal performance. Our proposals seek to correct these three deficiencies. Second, the rules that govern expenditures by the regional governments are too tight. We propose sharply reducing the constraints that face majors and governors. Third, the ability to run deficits and issue debt, in a context that includes moral hazard, has already become a source of problems. We propose a balanced budget rule for regional governments. We also argue in favor of reelection of the regional authorities (mayors and governors) as an incentive mechanism that enhances the effects of these reforms.

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Paper provided by FEDESARROLLO in its series WORKING PAPERS SERIES. DOCUMENTOS DE TRABAJO with number 002254.

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Length: 33
Date of creation: 30 Jun 2000
Handle: RePEc:col:000123:002254
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  1. Juan José Echavarría, 2001. "Colombia en la década de los noventa: neoliberalismo y reformas estructurales en el trópico," REVISTA CUADERNOS DE ECONOMÍA, UN - RCE - CID, July.
  2. Núñez C., Liliana & Ramírez, Juan Mauricio, 2000. "Reformas, crecimiento, progreso técnico y empleo en Colombia," Series Históricas 59, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
  3. Judson, Ruth, 1998. "Economic Growth and Investment in Education: How Allocation Matters," Journal of Economic Growth, Springer, vol. 3(4), pages 337-359, December.
  4. Juan Mauricio Ramírez & Liliana Núñez, 2000. "Reformas, crecimiento, progreso técnico y empleo en Colombia. Primera Parte," DOCUMENTOS DE INVESTIGACION 003436, CEPAL NACIONES UNIDAS.
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