Fiscal adjustments at the local level: evidence from Colombia
- PDF / 1,043,076 Bytes
- 26 Pages / 439.37 x 666.142 pts Page_size
- 10 Downloads / 189 Views
Fiscal adjustments at the local level: evidence from Colombia Richard Jaimes1
© The Author(s) 2020
Abstract Recent research suggests that intergovernmental grants, own-source revenues, and changes in government investment play a crucial role in helping local governments in advanced economies to adjust their fiscal positions in response to budget shocks. Little is known, however, about the dynamic of local fiscal adjustments in emerging economies, and there are reasons to expect distinct fiscal stabilization patterns, for instance, due to lower fiscal capacity. A panel dataset of more than 900 municipalities in Colombia shows that in line with some of the results for developed countries: (1) intergovernmental grants react significantly to increases in government spending; (2) the response of own-source revenues to innovations in government spending in large cities is higher than in the small ones; (3) government investment is highly volatile and responds to innovations in all other budgetary components; and (4) there is no empirical evidence of a reduction in fiscal effort following increases in intergovernmental grants. Keywords Fiscal adjustment · Local fiscal policy · Fiscal decentralization JEL Classification H70 · H72 · H77
1 Introduction Previous studies on fiscal performance at the local level in advanced economies point out that own-source revenues, intergovernmental grants, and changes in government investment play a major role in helping local governments to adjust their fiscal positions in response to budget shocks (Bessho and Ogawa 2015; Solé-Ollé and Sorribas-Navarro 2012; Buettner 2009; Buettner and Wildasin 2006). In emerging economies, however, there are reasons to expect different fiscal adjustment * Richard Jaimes [email protected] 1
Department of Economics, FIT, and CentER, Tilburg University, Warandelaan 2, 5037 AB Tilburg, The Netherlands
13
Vol.:(0123456789)
R. Jaimes
patterns such as weaker sub-national own-revenue systems, higher levels of fiscal disparities, rent-seeking behavior and corruption, the composition of government spending, coordination failures in the conduct of fiscal policy, and bailout expectations (Bird 2012; Bird and Fiszbein 2008; Acosta and Bird 2005). Despite this widespread view, there is a lack of empirical evidence supporting some of these hypotheses. This article aims to fill this gap in knowledge by using a panel dataset of more than 900 municipalities in Colombia over the period 1985–2015. The Colombian case is interesting for three reasons. First, it is one of the most decentralized public systems in Latin America. For instance, the share of local spending in total public expenditures increased from 18.5 in 1995 to 36.8% in 2012, and intergovernmental grants as a percentage of national government expenditures rose from 46.7 in 1995 to 62.9% in 2012. Second, during the last three decades, Colombia has embarked on a political and fiscal decentralization program. Its purpose has been to transfer responsibilities from higher levels of government t
Data Loading...
