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Intergovernmental Transfers and Municipal Finance in Colombia

  • Juan Camilo Chaparro

    (Fedesarrollo)

  • Michael Smart

    ()

    (University of Toronto)

  • Juan Gonzola Zapata

    (Fedesarrollo)

For the past fifteen years, Colombia has been engaged in a grand experiment in decentralization. Since 1986, subnational government spending has increased dramatically, as the regions have assumed greater control of health and education programs and other local services, and an increasing fraction of national revenues have been earmarked for transfer to lower-level governments. This paper examines fiscal data for a large number of Colombian municipalities for the 1985-99 period. Our first goal is to describe the effects of the transfer system on horizontal balance among municipalities. By our estimates, the fiscal capacities of Colombian municipalities differ substantially, which is a major challenge to designing an effective system of decentralization. Our second goal is to draw some inferences from the data about how the current system of transfers has affected the level of local taxation and spending, and the pattern of spending across functional categories. Our data cover a period that straddles the major reform in the allocation of municipal transfers that resulted from Law 60 in 1993. This permits a more accurate assessment of the effects of transfers than has been possible in previous research.

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File URL: http://www-2.rotman.utoronto.ca/iib/ITP0403.pdf
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Paper provided by International Tax Program, Institute for International Business, Joseph L. Rotman School of Management, University of Toronto in its series International Tax Program Papers with number 0403.

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Length: 40 Pages
Date of creation: Mar 2004
Date of revision:
Handle: RePEc:ttp:itpwps:0403
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References listed on IDEAS
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  1. Juan José Echavarría Soto & Carolina Rentería & Roberto Steiner, 2000. "Decentralization and Bailouts in Colombia," INFORMES DE INVESTIGACIÓN 002252, FEDESARROLLO.
  2. Anwar Shah, 1996. "A Fiscal Need Approach to Equalization," Canadian Public Policy, University of Toronto Press, vol. 22(2), pages 99-115, June.
  3. Dillinger, William & Webb, Steven B., 1999. "Decentralization and fiscal management in Colombia," Policy Research Working Paper Series 2122, The World Bank.
  4. Bird, Richard M. & Smart, Michael, 2002. "Intergovernmental Fiscal Transfers: International Lessons for Developing Countries," World Development, Elsevier, vol. 30(6), pages 899-912, June.
  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.
  6. Juan José Echavarría & Carolina Rentería & Roberto Steiner, 2002. "Decentralization and Bailouts in Colombia," IDB Publications (Working Papers) 5578, Inter-American Development Bank.
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