Decentralization and Fiscal Discipline in Subnational Governments:The Bailout Problem in Uruguay

Fernando Filgueira, Fernando Lorenzo, Juan Andrés Moraes, Herman Kamil and Andrés Rius

No 3152, Research Department Publications from Inter-American Development Bank, Research Department

Abstract: This paper analyzes the reasons behind Central Government (CG) bailouts of Subnational Governments (SNGs) in the case of Uruguay. We argued that Uruguay represents a good example of the risks of fiscal decentralization, in the context of adjustment policies, and when SNGs` responsibilities and resources have not been carefully defined. We show that, in unitary countries where SNGs lack the opportunities to misbehave that they have in federal countries (e. g. , public debt issuance, international borrowing), SNG officials find ways to finance deficits through non-compliance with politically contestable obligations. In particular, SNGs in Uruguay finance their deficits by accumulating debts with other government agencies and obtaining discretionary transfers from the CG. Through statistical analyses we show that debts and deficits are mainly related to vertical fiscal imbalances and economic conditions in the SN jurisdictions. Yet, the analysis of recent bailout episodes suggests that institutions and political factors play a role (i. e. , they are important ex-post factors). This implies that bailouts have been more than simple compensations for structural imbalances, thus creating opportunities for strategic behavior on the part of SNG authorities (partly confirmed by the disparate fiscal performance of Montevideo vis-à-vis the rest of the country).

Date: 2002-05
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.iadb.org/research/pub_hits.cfm?pub_id=R ... le_name=pubR-459.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.iadb.org/research/pub_hits.cfm?pub_id=R-459&pub_file_name=pubR-459.pdf [301 Moved Permanently]--> https://www.iadb.org/research/pub_hits.cfm?pub_id=R-459&pub_file_name=pubR-459.pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:idb:wpaper:3152

Access Statistics for this paper

More papers in Research Department Publications from Inter-American Development Bank, Research Department Contact information at EDIRC.
Bibliographic data for series maintained by Felipe Herrera Library ().