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Fiscal Decentralization and the Allocation of Public Spending of Subnational Governments. The Case of Ecuador

Henry Aray () and Janeth Pacheco-Delgado ()
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Janeth Pacheco-Delgado: Technical University of Manabí

No 22/01, ThE Papers from Department of Economic Theory and Economic History of the University of Granada.

Abstract: This article analyzes the relationship between fiscal decentralization and the growth rate of per capita public spending by subnational governments in Ecuador. A theoretical model is proposed to support the empirical strategy. Data at provincial level over the period 2001–2015 are used. The estimation results for the aggregation of subnational governments show that financial autonomy is positively correlated with the growth rates of per capita public investment and per capita current spending. However, the latter is also negatively correlated with tax autonomy. When using disaggregated data on provincial and local governments, results for financial autonomy hold in most of the cases. However, no evidence is found for tax autonomy. Evidence on a structural break following the passing of the Constitution of 2008 is also found and suggests that the Constitution has had an overall positive impact on public spending. Moreover, considering the structural break sheds light on the results found when it is not taken into account.

Keywords: Subnational governments; Decentralization; Public spending; Ecuador. (search for similar items in EconPapers)
JEL-codes: C23 H53 H77 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2022-01-18
New Economics Papers: this item is included in nep-pbe, nep-pub and nep-ure
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