More than You Can Handle: Decentralization and Spending Ability of Peruvian Municipalities

34 Pages Posted: 20 Apr 2016

See all articles by Norman Loayza

Norman Loayza

World Bank - Research Department

Jamele Rigolini

New York University (NYU) - Department of Economics

Oscar Calvo‐González

World Bank

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Date Written: August 1, 2011

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 allocationprocess; 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

Suggested Citation

Loayza, Norman and Rigolini, Jamele and Calvo-Gonzalez, Oscar, More than You Can Handle: Decentralization and Spending Ability of Peruvian Municipalities (August 1, 2011). World Bank Policy Research Working Paper No. 5763. Available at SSRN: https://ssrn.com/abstract=1911715

Norman Loayza (Contact Author)

World Bank - Research Department ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

Jamele Rigolini

New York University (NYU) - Department of Economics ( email )

269 Mercer Street, 7th Floor
New York, NY 10011
United States

Oscar Calvo-Gonzalez

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

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