More than you can handle: decentralization and spending ability of Peruvian municipalities

Norman Loayza (), Iamele Rigolini and Oscar Calvo-Gonzalez

No 5763, Policy Research Working Paper Series from The World Bank

Abstract: In the past three decades, emerging countries have gone through extensive decentralization reforms. Yet, there are no studies assessing quantitatively the relative importance of various factors known to affect the success of decentralization. This paper builds on a comprehensive dataset the authors constructed for Peru, which merges municipal fiscal accounts with information about municipalities'characteristics such as population, poverty, education, and local politics. The paper then analyzes the leading factors affecting the ability of municipalities to execute the allocated budget using complementary methodologies, from least squares to quantile regression analyses. According to the existing literature and the Peruvian context, the analysis divides these factors into four categories: the budget size and allocation process; local capacity; local needs; and political economy constraints. Although all four factors affect decentralization, the largest determinant of spending ability is the adequacy of the budget with respect to local capacity. The results confirm the need for decentralization to be implemented gradually over time in parallel with strong capacity building efforts.

Keywords: Public Sector Expenditure Policy; Subnational Economic Development; Debt Markets; Political Economy; Municipal Financial Management (search for similar items in EconPapers)
Date: 2011-08-01
New Economics Papers: this item is included in nep-geo, nep-lam, nep-pbe, nep-pol and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Related works:
Journal Article: More Than You Can Handle: Decentralization and Spending Ability of Peruvian Municipalities (2014)
Working Paper: More than You Can Handle Decentralization and Spending Ability of Peruvian Municipalities (2014)
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