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Intergovernmental Transfers and Municipal Finance in Colombia

Author

Listed:
  • Juan Camilo Chaparro

    (Fedesarrollo)

  • Michael Smart

    () (University of Toronto)

  • Juan Gonzola Zapata

    (Fedesarrollo)

Abstract

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.

Suggested Citation

  • Juan Camilo Chaparro & Michael Smart & Juan Gonzola Zapata, 2004. "Intergovernmental Transfers and Municipal Finance in Colombia," International Tax Program Papers 0403, International Tax Program, Institute for International Business, Joseph L. Rotman School of Management, University of Toronto.
  • Handle: RePEc:ttp:itpwps:0403
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    File URL: http://www-2.rotman.utoronto.ca/iib/ITP0403.pdf
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    References listed on IDEAS

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    1. Anwar Shah, 1996. "A Fiscal Need Approach to Equalization," Canadian Public Policy, University of Toronto Press, vol. 22(2), pages 99-115, June.
    2. Juan José Echavarría Soto & Carolina Rentería & Roberto Steiner, 2000. "Decentralization and Bailouts in Colombia," INFORMES DE INVESTIGACIÓN 002252, FEDESARROLLO.
    3. Bird, Richard M., 1993. "Threading the Fiscal Labyrinth: Some Issues in Fiscal Decentralization," National Tax Journal, National Tax Association, vol. 46(2), pages 207-27, June.
    4. Dillinger, William & Webb, Steven B., 1999. "Decentralization and fiscal management in Colombia," Policy Research Working Paper Series 2122, The World Bank.
    5. Bird, Richard M. & Smart, Michael, 2002. "Intergovernmental Fiscal Transfers: International Lessons for Developing Countries," World Development, Elsevier, vol. 30(6), pages 899-912, June.
    6. 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. Felipe Barrera-Osorio & Mauricio Olivera & Carlos Ospino, 2009. "Does Society Win or Lose as a Result of Privatization? The Case of Water Sector Privatization in Colombia," Economica, London School of Economics and Political Science, vol. 76(304), pages 649-674, October.
    2. Roy Bahl & Musharraf Cyan, 2009. "Local Government Taxation in Pakistan," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0909, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    3. Leonardo Villar & Natalia Salazar Ferro & Mary Simpson & Martha Delgado & Roberto Steiner & Juan Gonzalo Zapata & Orlando Gracia & Carlos Antonio Mesa, 2016. "Sistema General de Participaciones y su vínculo con las políticas e incentivos dirigidos a la excelencia docente y el mejoramiento continuo de la calidad de la educación," INFORMES DE INVESTIGACIÓN 014442, FEDESARROLLO.
    4. World Bank, 2009. "Colombia - Decentralization : Options and Incentives for Efficiency - Sector Annexes," World Bank Other Operational Studies 3097, The World Bank.
    5. Juan David Barón R. & Adolfo Meisel R., 2003. "La descentralización y las disparidades económicas regionales en Colombia en la década de 1990," COYUNTURA ECONÓMICA, FEDESARROLLO, September.
    6. Mauricio Olivera & Felipe Barrera, 2007. "La sociedad gana o pierde como resultado de la privatizacion? El caso de Colombia," Research Department Publications 3231, Inter-American Development Bank, Research Department.
    7. García Cruz Gustavo Adolfo, 2008. "Informalidad regional en Colombia. Evidencia y Determinantes," REVISTA DESARROLLO Y SOCIEDAD, UNIVERSIDAD DE LOS ANDES-CEDE, February.
    8. World Bank, 2009. "Colombia - Decentralization : Options and Incentives for Efficiency - Main Report," World Bank Other Operational Studies 3096, The World Bank.
    9. Jaime Bonet, 2006. "Desequilibrios regionales en la política de descentralización en Colombia," DOCUMENTOS DE TRABAJO SOBRE ECONOMÍA REGIONAL Y URBANA 002293, BANCO DE LA REPÚBLICA - ECONOMÍA REGIONAL.
    10. Bernardi, Luigi & Fumagalli, Elena & Fumagalli, Laura, 2007. "Tax Systems and tax reforms in Latin America, Part I : country studies, Colombia," MPRA Paper 5224, University Library of Munich, Germany.
    11. repec:kap:itaxpf:v:24:y:2017:i:4:d:10.1007_s10797-017-9461-4 is not listed on IDEAS
    12. 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.
    13. 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, Grupo Eumed.net (Universidad de Málaga), issue 130, April.
    14. Villa, Juan M., 2014. "Social transfers and growth: The missing evidence from luminosity data," WIDER Working Paper Series 090, World Institute for Development Economic Research (UNU-WIDER).
    15. Marta Ferreira Dias & Ricardo Silva, 2004. "Central Government Transfers and Regional Convergence in Portugal," ERSA conference papers ersa04p443, European Regional Science Association.
    16. Gerardo Villa, 2005. "Reseña sobre el ajuste fiscal territorial después de la Constitución de 1991," ENSAYOS SOBRE ECONOMÍA REGIONAL (ESER) 003458, BANCO DE LA REPÚBLICA - ECONOMÍA REGIONAL.
    17. Juan M. Villa, 2016. "Social Transfers and Growth: Evidence from Luminosity Data," Economic Development and Cultural Change, University of Chicago Press, vol. 65(1), pages 39-61.
    18. Taimur Samad & Nancy Lozano-Gracia & Alexandra Panman, 2012. "Colombia Urbanization Review : Amplifying the Gains from the Urban Transition," World Bank Publications, The World Bank, number 11955.
    19. World Bank & European Commission & Food and Agriculture Organization & United Nations Children’s Fund & United Nations Development Program & World Health Organization, 2007. "Angola : Public Expenditure Review, Volume 2. Sectoral Review," World Bank Other Operational Studies 7648, The World Bank.

    More about this item

    Keywords

    Columbia; decentralization; subnational taxes; local taxation;

    JEL classification:

    • O54 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Latin America; Caribbean
    • 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
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure

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