Those who collect taxes use transfers better: Evidence of decentralization design and service outcomes in Bolivia

Gover Barja Daza

EconStor Open Access Articles and Book Chapters, 2026, vol. 24, issue 45, 47-82

Abstract: This paper examines whether the design elements of decentralization—own-revenue effort, operations and maintenance (opex), capital expenditure (capex), and total execution—help explain municipal differences in poverty-relevant service conditions and their downstream influence on human capital and the local economy. A recursive SEM is estimated within departments, with services defined as an SDG1-based composite. Robustness replaces the mediator with a basic-infrastructure services composite (biservices1) and reparameterizes execution as total executed expenditure per capita. Four results stand out: (i) own-revenue effort is the strongest predictor of services, while execution scale is positive but smaller; in composition, opex—not capex—supports services; (ii) capex influences the economy directly, consistent with an investment pass-through; (iii) higher services raise the predicted level of human-capital and economic outcomes in the model, with the former path larger; and (iv) population scale and density matter. The pattern is consistent with a flypaper-with-effort interpretation: where fiscal effort and operations and maintenance (O&M) discipline are present, available resources—including transfers—translate more effectively into poverty-relevant service conditions. At the same time, investment directly influences the economy. Estimates are directed influences within the maintained model, not counterfactual causal effects. Policy implications: (i) embed effort-compatible transfers so own-source revenue unlocks additional grant resources; (ii) protect O&M floors to keep assets working; (iii) pair new capex with credible O&M plans; and (iv) keep services abreast of agglomeration.

Keywords: Decentralization design; Own-source revenue; Intergovernmental transfers; Opex and Capex; Service delivery; Structural equation modeling; Flypaper effect; Municipal finance; Bolivia (search for similar items in EconPapers)
JEL-codes: C38 H54 H71 H72 H77 O18 O54 (search for similar items in EconPapers)
Date: 2026
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Journal Article: Those Who Collect Taxes Use Transfers Better: Evidence of Decentralization Design and Service Outcomes in Bolivia (2026)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:espost:342354

DOI: 10.35319/lajed.202645610

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