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Intergovernmental transfers and fiscal effort in Peruvian local governments


  • Aragon, Fernando
  • Gayoso, Vilma


The purpose of this paper is to identify the causal relationship between intergovernmental transfers and fiscal effort. Empirical evidence from Peruvian municipalities supports a negative relation. The substitution effect is decreasing on the level of municipalities’ expenditure and tends to disappear for high-expenditure localities. Given this phenomenon, devolving responsibilities to sub-national governments might reduce fiscal effort and deteriorate fiscal balance especially among localities with lower fiscal capacity. A possible solution might be the inclusion of fiscal effort indicators in the intergovernmental transfer design.

Suggested Citation

  • Aragon, Fernando & Gayoso, Vilma, 2005. "Intergovernmental transfers and fiscal effort in Peruvian local governments," MPRA Paper 2108, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:2108

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    References listed on IDEAS

    1. Fisman, Raymond & Gatti, Roberta, 2002. "Decentralization and corruption: evidence across countries," Journal of Public Economics, Elsevier, vol. 83(3), pages 325-345, March.
    2. Pranab Bardhan, 2002. "Decentralization of Governance and Development," Journal of Economic Perspectives, American Economic Association, vol. 16(4), pages 185-205, Fall.
    3. Faguet, Jean-Paul, 2001. "Does decentralization increase responsiveness to local needs? - evidence from Bolivia," Policy Research Working Paper Series 2516, The World Bank.
    4. James J. Heckman & Hidehiko Ichimura & Petra Todd, 1998. "Matching As An Econometric Evaluation Estimator," Review of Economic Studies, Oxford University Press, vol. 65(2), pages 261-294.
    5. James R. Hines & Richard H. Thaler, 1995. "The Flypaper Effect," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 217-226, Fall.
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    Cited by:

    1. Matteo Bobba & Jérémie Gignoux, 2011. "Policy-induced Social Interactions and Schooling Decisions," PSE - G-MOND WORKING PAPERS halshs-00962478, HAL.
    2. Abdul Jalil, Ahmad Zafarullah & Abdul Karim, Noor Al-Huda, 2009. "Understanding Malaysian State Governments Fiscal Behavior: The Role of Intergovernmental Transfers," MPRA Paper 25188, University Library of Munich, Germany.
    3. Gustavo Canavire-Bacarreza & Jorge Martínez-Vázquez & Cristián Sepúlveda, 2012. "Sub-national Revenue Mobilization in Peru," IDB Publications (Working Papers) 3951, Inter-American Development Bank.

    More about this item


    fiscal effort; intergovernmental transfers; fiscal decentralization; local taxation;

    JEL classification:

    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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