Sustainable finance and horizontal fiscal equalization: the case of bolivian municipalities

Bernardo X. Fernández-Tellería () and Leticia Victoria Castedo Michel
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Bernardo X. Fernández-Tellería: British Embassy in Bolivia
Leticia Victoria Castedo Michel: University of Padova, Italia

No 625, Investigación & Desarrollo from Universidad Privada Boliviana

Abstract: Sustainable finance is consistently gaining relevance in financial markets across the world including Bolivia, a coun-try where more than seventy percent of the population live in urban areas. Even though municipalities should be a top destination of sustainable funding to address the country’s most urgent development challenges, they have struggled to access the local financial market mainly due to their highly heterogeneous financial strength. To address this, the paper proposes a novel financing scheme that combines the notion of horizontal fiscal equalization – a redistributive approach to transfer resources from richer to poorer jurisdictions to mitigate size and development differences – and the principles of sustainable finance to face major development challenges associated with poverty, inequality and climate change vulnerability. To illustrate this, the paper estimates and characterizes the rela-tive financial strength of Bolivia’s ten main municipalities and shows that three well-known investment vehicles amenable to the notion of horizontal fiscal equalization can be effectively used for channeling much needed sustainable funding to local governments. In effect, the proposed financing scheme could increase financial inclusion amongst Bolivian municipalities and channel much needed funding to significantly enhance the country’s efforts to achieve its climate commitments and development goals.

Keywords: sustainable finance; fiscal equalization; municipal-ities; financial inclusion. (search for similar items in EconPapers)
JEL-codes: G1 G18 H63 Q01 (search for similar items in EconPapers)
Pages: 13 pages
Date: 2025
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Published in Investigación & Desarrollo, Vol. 25, No. 2, pp. 74-86 (2025)

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Persistent link: https://EconPapers.repec.org/RePEc:iad:wpaper:0625

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