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Decentralization and fiscal management in Colombia

  • Dillinger, William
  • Webb, Steven B.
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    Colombia's political geography contrasts sharply with its economy. Physical characteristics and guerilla war fragment the country geographically, yet it has a long tradition of political centrism and macroeconomic stability. Recently, with political and economic decentralization, there has been some weakening of macroeconomic performance. The authors explore institutional arrangements that have helped Colombia manage the fiscal aspects of decentralization, despite the country's political problems. Fiscal decentralization proceeded rapidly in Colombia. Education, health, and much infrastructure provision have been decentralized to the departmentos and municipios. Decentralization has led to substantial but not overwhelming problems, both in maintaining fiscal balance nationally ( as resources are transferred of subnational levels) and in preventing unsustainable deficits by the subnational governments. The problems have arisen because central government interference prevents departments from controlling their costs and because of expectations of debt bailouts. Both are legacies of the earlier pattern of management from the center, and some recent changes - especially about subnational debt - may improve matters. Colombia's traditional political process has had difficulty dealing with problems of decentralization because traditional parties are weak in internal organization and have lost de facto rule over substantial territories. The fiscal problems of subnational government have been contained, however, because subnational governments are relatively weak politically and the central government, for the time being, has been able to enforce restrictions on subnational borrowing.

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    Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2122.

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    Date of creation: 31 May 1999
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    Handle: RePEc:wbk:wbrwps:2122
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    1. Wildasin, David E., 1998. "Fiscal aspect of evolving federations : issues for policy and research," Policy Research Working Paper Series 1884, The World Bank.
    2. Philip Keefer and David Stasavage, 1998. "When does delegation improve credibility? Central Bank independence and the separation of powers," Economics Series Working Papers WPS/1998-18, University of Oxford, Department of Economics.
    3. Cukierman, A. & Webb, S., 1994. "Political Influence on the Central Bank : International Evidence," Discussion Paper 1994-100, Tilburg University, Center for Economic Research.
    4. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64, pages 416.
    5. Fiszbein, Ariel, 1997. "The Emergence of local capacity: Lessons from Colombia," World Development, Elsevier, vol. 25(7), pages 1029-1043, July.
    6. Weingast, Barry R, 1995. "The Economic Role of Political Institutions: Market-Preserving Federalism and Economic Development," Journal of Law, Economics and Organization, Oxford University Press, vol. 11(1), pages 1-31, April.
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