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Does decentralization increase responsiveness to local needs? - evidence from Bolivia

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  • Faguet, Jean-Paul

Abstract

Significant changes in public investment patterns - in both the sectoral uses of funds, and their geographic distribution - emerged after Bolivia devolved substantial resources from central agencies, to municipalities in 1994. By far the most important determinant of these changes are objective indicators of social need (for example, education investment rises where illiteracy is higher). Indicators of institutional capacity, and social organization are less important. Empirical tests using a unique database show that investment changed significantly in education, agriculture, urban development, water management, water and sanitation, and possibly health. These results are robust, and insensitive to specification. As the smallest, poorest municipalities invested newly devolved public funds in their highest priority projects, investment showed a strong, positive relationship with need in agriculture, and the social sectors. In sectors where decentralization did not bring about changes, the central government had invested little before a994, and the local government continued to invest little afterward. These findings are consistent with a model of public investment, in which local government's superior knowledge of local needs, dominates the central government's technical, and organizational advantage in the provision of public services.

Suggested Citation

  • Faguet, Jean-Paul, 2001. "Does decentralization increase responsiveness to local needs? - evidence from Bolivia," Policy Research Working Paper Series 2516, The World Bank.
  • Handle: RePEc:wbk:wbrwps:2516
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    Cited by:

    1. Alain de Janvry & Frederico Finan & Elisabeth Sadoulet, 2012. "Local Electoral Incentives and Decentralized Program Performance," The Review of Economics and Statistics, MIT Press, vol. 94(3), pages 672-685, August.
    2. Junaid Ahmad & Shantayanan Devarajan & Stuti Khemani & Shekhar Shah, 2006. "Decentralization and Service Delivery," Chapters,in: Handbook of Fiscal Federalism, chapter 10 Edward Elgar Publishing.
    3. World Bank, 2003. "Decentralizing Indonesia : A Regional Public Expenditure Review Overview Report," World Bank Other Operational Studies 14632, The World Bank.
    4. Timothy Besley & Rohini Pande & Vijayendra Rao, 2005. "Political Selection and the Quality of Government: Evidence from South India," STICERD - Political Economy and Public Policy Paper Series 08, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    5. Richard M. bird, 2003. "Taxation in Latin America: Reflections on Sustainability and the Balance between Equity and Efficiency," International Tax Program Papers 0306, International Tax Program, Institute for International Business, Joseph L. Rotman School of Management, University of Toronto.
    6. Pal, Sarmistha & Wahhaj, Zaki, 2017. "Fiscal decentralisation, local institutions and public good provision: evidence from Indonesia," Journal of Comparative Economics, Elsevier, vol. 45(2), pages 383-409.
    7. Susan Steiner, 2005. "Decentralisation and Poverty Reduction: A Conceptual Framework for the Economic Impact," Public Economics 0508006, EconWPA.
    8. Timothy Besley & Rohini Pande & Vijayendra Rao, 2012. "Just Rewards? Local Politics and Public Resource Allocation in South India," World Bank Economic Review, World Bank Group, vol. 26(2), pages 191-216.
    9. repec:ces:ifodic:v:2:y:2004:i:1:p:14567690 is not listed on IDEAS
    10. Anwar Shah & Theresa Thompson & Heng-fu Zou, 2004. "Decentralising the public sector: The Impact of Decentralisation on Service Delivery, Corruption, Fiscal Management and Growth in Developing and Emerging Market Economies: A Synthesis of Empirical Evi," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 2(1), pages 10-14, October.
    11. Anila Channa & Jean-Paul Faguet, 2016. "Decentralization of Health and Education in Developing Countries: A Quality-Adjusted Review of the Empirical Literature," World Bank Research Observer, World Bank Group, vol. 31(2), pages 199-241.
    12. Faguet, Jean-Paul & Sánchez, Fabio, 2008. "Decentralization's Effects on Educational Outcomes in Bolivia and Colombia," World Development, Elsevier, vol. 36(7), pages 1294-1316, July.
    13. Neyapti, Bilin, 2010. "Fiscal decentralization and deficits: International evidence," European Journal of Political Economy, Elsevier, vol. 26(2), pages 155-166, June.
    14. Seemann, Miriam, 2004. "The Bolivian Decentralization Process and the Role of Municipal Associations," HWWA Discussion Papers 271, Hamburg Institute of International Economics (HWWA).
    15. Fabio Sánchez Torres & Irina España Eljaiek & Jannet Zenteno, 2012. "Sub-national Revenue Mobilization in Latin American and Caribbean Countries: The Case of Colombia," IDB Publications (Working Papers) 4191, Inter-American Development Bank.
    16. Elizabeth M. King & Claudio E. Montenegro & Peter F. Orazem, 2012. "Economic Freedom, Human Rights, and the Returns to Human Capital: An Evaluation of the Schultz Hypothesis," Economic Development and Cultural Change, University of Chicago Press, vol. 61(1), pages 39-72.
    17. Fabio Sánchez, 2006. "Descentralización Y Progreso En El Acceso A Los Servicios Sociales De Educación, Salud Y Agua Y Alcantarillado," DOCUMENTOS CEDE 002287, UNIVERSIDAD DE LOS ANDES-CEDE.
    18. Victoria Gunnarsson & Peter F. Orazem & Mario A. Sánchez & Aimee Verdisco, 2009. "Does Local School Control Raise Student Outcomes? Evidence on the Roles of School Autonomy and Parental Participation," Economic Development and Cultural Change, University of Chicago Press, vol. 58(1), pages 25-52, October.
    19. Anwar Shah, 2005. "Public Expenditure Analysis," World Bank Publications, The World Bank, number 7436, January.
    20. Faguet, Jean-Paul, 2014. "Decentralization and Governance," World Development, Elsevier, vol. 53(C), pages 2-13.
    21. Aragon, Fernando & Gayoso, Vilma, 2005. "Intergovernmental transfers and fiscal effort in Peruvian local governments," MPRA Paper 2108, University Library of Munich, Germany.
    22. Khaleghian, Peyvand, 2003. "Decentralization and public services : the case of immunization," Policy Research Working Paper Series 2989, The World Bank.
    23. Francken, Nathalie & Minten, Bart & Swinnen, Johan F.M., 2009. "Media, Monitoring, and Capture of Public Funds: Evidence from Madagascar," World Development, Elsevier, vol. 37(1), pages 242-255, January.

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    Keywords

    National Governance; Economic Theory&Research; Banks&Banking Reform; Municipal Financial Management; Environmental Economics&Policies;

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