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Decentralization and Bailouts in Colombia

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  • Juan José Echavarría Soto
  • Carolina Rentería
  • Roberto Steiner

Abstract

INTRODUCTION. Within the Latin American context Colombia is in a relatively advanced stage in terms of decentralization. According to the IDB (1997), it ranks third in the region after Argentina and Brazil, two countries organized as Federal States. While in 1995 average public expenditure allocated by sub-national governments amounted to 15% of total public expenditure in Latin America and to 35% in the OECD countries, it reached 39% in the case of Colombia. Economic activity is also very decentralized compared to other Latin American countries. Descentralization has meny benefits, but it can also weaken fiscal discipline; specifically, expectations on the possibility of a bailout by central government create incentives for fiscal misbehavior; fiscal discipline does not pay because it carries a smaller expected bailout. In Colombia the substantial transfer form the central government to the sub-regions created structural expenditure pressures and irresponsible behavior in terms of debt (mainly loans from banks), brought the departments into default and forced the central government to bail them out.

Suggested Citation

  • Juan José Echavarría Soto & Carolina Rentería & Roberto Steiner, 2000. "Decentralization and Bailouts in Colombia," Informes de Investigación 2252, Fedesarrollo.
  • Handle: RePEc:col:000124:002252
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    Cited by:

    1. Braun, Miguel & Di Gresia, Luciano, 2003. "Towards Effective Social Insurance in Latin America: The Importance of Countercyclical Fiscal Policy," IDB Publications (Working Papers) 1463, Inter-American Development Bank.
    2. Foremny, Dirk, 2014. "Sub-national deficits in European countries: The impact of fiscal rules and tax autonomy," European Journal of Political Economy, Elsevier, vol. 34(C), pages 86-110.
    3. Mariano Tommasi & Miguel Braun, 2002. "Fiscal Rules for Subnational Governments. Some Organizing Principles and Latin American Experiences," Working Papers 44, Universidad de San Andres, Departamento de Economia, revised Mar 2002.
    4. Barón-Rivera, Juan David & Meisel-Roca, Adolfo, 2004. "La descentralización y las disparidades económicas regionales en Colombia en la década de 1990," Chapters, in: Meisel-Roca, Adolfo (ed.), Macroeconomía y regiones en Colombia, chapter 4, pages 152-217, Banco de la Republica de Colombia.
    5. Joaquín Viloria-De-la-Hoz, 2015. "Santa Marta Real y Republicana: El accionar económico y político de la Provincia de Santa Marta en los albores de la independencia, 1810-1830," Cuadernos de Historia Económica 12781, Banco de la República, Economía Regional.
    6. Miguel Braun & Luciano di Gresia, 2003. "Hacia un sistema de seguro social eficaz en América Latina: la importancia de una política fiscal anticíclica," Research Department Publications 4334, Inter-American Development Bank, Research Department.
    7. Bonet-Morón, Jaime Alfredo, 2007. "Desequilibrios regionales en la política de descentralización en Colombia," Chapters, in: Fernández, Manuel & Guerra-Curvelo, Weildler & Meisel-Roca, Adolfo (ed.), Políticas para reducir las desigualdades regionales en Colombia, chapter 3, pages 44-81, Banco de la Republica de Colombia.
    8. Sebastian Katz, 2008. "Comentarios sobre las posibilidades de un nuevo programa macroeconómico entre Honduras y el Fondo Monetario Internacional," Research Department Publications 2014, Inter-American Development Bank, Research Department.
    9. Bonet-Morón, Jaime Alfredo & Galvis-Aponte, Luis Armando (ed.), 2016. "Sistemas de transferencias subnacionales : lecciones para una reforma en Colombia," Books, Banco de la Republica de Colombia, number 2016-02.
    10. Mariano Tommasi, 2002. "Federalism in Argentina and the Reforms of the 1990s," Working Papers 48, Universidad de San Andres, Departamento de Economia, revised May 2002.
    11. Jaime Bonet Morón, 2004. "Descentralización fiscal y disparidades en el ingreso regional: La experiencia colombiana," Documentos de trabajo sobre Economía Regional y Urbana 49, Banco de la Republica de Colombia.
    12. Joaquín Mauricio Zuleta Arango & Lisandro López Marín & Daniel Sánchez García, 2010. "Descentralización Y Disparidades Económicas Territoriales En Colombia (1990-2005)," Observatorio de la Economía Latinoamericana, Servicios Académicos Intercontinentales SL. Hasta 31/12/2022, issue 130, April.
    13. Luis Fernando Ramírez Hernández & Manuel Beltrán Garzón, 2009. "Justificación económica de la descentralización: un análisis desde las finanzas regionales," Revista Equidad y Desarrollo, Universidad de la Salle, August.
    14. Michael Smart & Juan Gonzalo Zapata & Juan Camilo Chaparro, 2004. "Transferencias intergubernamentales y finanzas municipales en Colombia," Coyuntura Económica, Fedesarrollo, March.
    15. Webb, Steven B., 2004. "Fiscal responsibility laws for subnational discipline : the Latin American experience," Policy Research Working Paper Series 3309, The World Bank.
    16. Fernández, Manuel & Guerra-Curvelo, Weildler & Meisel-Roca, Adolfo (ed.), 2007. "Políticas para reducir las desigualdades regionales en Colombia," Books, Banco de la Republica de Colombia, number 2007-10.
    17. World Bank, 2005. "Colombia : Country Economic Memorandum, The Foundations for Competitiveness," World Bank Publications - Reports 8807, The World Bank Group.
    18. Galindo-Silva, Hector, 2015. "New parties and policy outcomes: Evidence from Colombian local governments," Journal of Public Economics, Elsevier, vol. 126(C), pages 86-103.
    19. Meisel-Roca, Adolfo (ed.), 2004. "Macroeconomía y regiones en Colombia," Books, Banco de la Republica de Colombia, number 2004-04.

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    More about this item

    Keywords

    Descentralización; Política Fiscal; Colombia;
    All these keywords.

    JEL classification:

    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • 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
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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