Institutional Design and Implicit Incentives in Bolivia's Decentralization Model
DOI:
https://doi.org/10.35319/lajed.201319112Keywords:
Second generation fiscal federalism, Panel models, Bolivia.Abstract
The second generation fiscal federalism (SGFF) approach is used as a reference to analyze the political and fiscal institutional design of Bolivia’s decentralization model and its evolution. Subnational public finance data up to 2008 is used to verify that decentralization of expenditure was higher than that of revenue, establishing a context of vertical fiscal imbalance that increased due to growing fiscal transfers during the positive external shock (boom) period. Consequently, the subnational fiscal surplus was not a result of internal efficiency but of excess revenues from such transfers. Panel models were estimated to identify and assess the implicit incentives embedded in fiscal institutions of the decentralization model.
Findings at the municipal level are: i) misalignment of local spending with local interests due to dominance of transfers over own revenue (dominance of central government development policies); ii) incentive to spend transfers faster than own revenue (flypaper effect); iii) greater marginal contribution of own revenue to positive fiscal balances compared to transfers, thus introducing the seed for a soft budget constraint but hidden by the fiscal surplus; iv) disincentive to generate own revenue (tax and non-tax) due to the size and growth of transfers (disincentive to the culture of contributing to own revenue). Findings at the prefectural level are: i) misalignment with regional interests given the dominance of transfers over own revenue due to absolute lack of tax powers (until 2009); ii) high tendency to a soft budget constraint and, eventually, also fiscal bail-out, hidden by the fiscal surplus; iii) in only two departments collection of national-level taxes were higher, compared to transfers received in the same departments; iv) disincentive to pay the VAT (national-level tax) due to higher royalty transfers received, an effect not extended to other national-level taxes; v) high dependence from hydrocarbon-based transfers, and fiscal risk when this natural resource declines (both in volume and prices) due to volatility of international oil prices. Also, as a result of the decentralization model a positive and significant impact was found on education-coverage indicators, an important development objective of the national government.
Downloads
References
Ajwad, M. I. & Wodon, Q. (2007). Do local Governments Maximize Access Rates to Public Services across Areas? A Test Based on Marginal Benefit Incidence Analysis. The Quarterly Review of Economics and Finance, 47 (2) 242-260.
Aragon, Fernando M. (2008). “The Flypaper Effect Revisited”. The Suntory Centre, London School of Economics and Political Science, EOPP/2009/4.
Banco Mundial (2006). “Hacia una descentralización incluyente”. Tomo II: Análisis Técnico Detallado, Análisis de la Situación Institucional y de Gobernabilidad (IGR). La Paz: Banco Mundial.
Barja, Gover, Villarroel, Sergio and Zavaleta, David (2012). Diseño institucional e incentivos implícitos en la descentralización boliviana. La Paz: Fundación PIEB Editores, PIEB-MpD/UCB.
Barrios Suvelza, Franz Xavier (2002). El Estado triterritorial: una nueva descentralización para Bolivia. La Paz: Plural Editores, FES-ILDIS.
Bird, R. M. (1993). Threading the Fiscal Labyrinth: Some Issues in Fiscal Decentralization. National Tax Journal, 46 (2) 207-227.
Bird, R. M. and Vaillancourt, F. (Eds.) (1998). Fiscal Decentralization in Developing Countries. New York and London: Cambridge University Press.
Bourguignon, François (2002). “The Growth Elasticity of Poverty Reduction: Explaining Heterogeneity across countries and Time Periods”. Working Paper Nº 2002- 03. DELTA and The World Bank.
---------- (2004). “The Poverty-Growth-Inequality Triangle”. The World Bank. Paper.
Canavire-Bacarreza, G.; Martínez-Vázquez, J. and Sepúlveda, C. (2011). “Subnational Revenue Mobilization in Peru”. IADB Research Network Project. Forthcoming.
DeFiguereido, Rui and Weingast, Barry (1997). Self-enforcing federalism. Journal of Law, Economics and Organization, 21, 103-135.
Escalante, S.(1997). La Participación Popular y sus efectos sobre la equidad: un análisis a partir de la evolución de los planes anuales operativos municipales. In G. Gray-Molina (Ed.) Participación Popular: construyendo políticas públicas locales en Bolivia. La Paz: Unidad de Análisis de Políticas Sociales (UDAPSO).
Espada, J.L. (2011). Financiamiento y gasto de las gobernaciones: autonomía sin reforma. Centro de Estudios para el Desarrollo Laboral y Agrario (CEDLA). Serie Transparencia Fiscal, La Paz, Marzo.
Faguet, J. P. (2004). “Does decentralization increase government responsiveness to local needs? Evidence from Bolivia”. Journal of Public Economics, Vol. 88 No. 4, pp. 867-893.
Finot, Iván (2003). El proceso boliviano de descentralización: análisis comparativo y pautas para seguir adelante. En La descentralización que se viene: propuestas para la (re)constitución del nivel estatal intermedio (pp. 131-167). La Paz: Plural Editores– FES/ILDIS,
---------- (2005). Descentralización, transferencias territoriales y desarrollo local. Revista de la CEPAL, 86, 29-46.
Gamkhar, Shama and Shah, Anwar (2007). The Impact of Intergovernmental Fiscal Transfers: A Synthesis of the Conceptual and Empirical Literature. In Robin Boadway and Anwar Shah (Eds.) Intergovernmental Fiscal Transfers: Principles and Practice (pp. 225-258), Public Sector Governance and Accountability Series, Washington: World Bank
Graham, C. (1997). “Apoyo para las reformas de mercado en Bolivia: los programas de capitalización y participación popular”. In M. H. Peirce (Ed.), Capitalización: el modelo boliviano de reforma social y económica. (pp. 23-70). Washington: The Woodrow Wilson Center, North South Center.
Gray-Molina, G. (2004). “Popular Participation and Poverty Reduction in Bolivia”. In I. Licha (Ed.) Citizens in Charge Managing Local Budgets in East Asia and Latin America. (pp. 223-245) Washington: Banco Interamericano de Desarrollo.
Gray-Molina, G., Pérez de Rada, E. and Yáñez, E. (1999). “La economía política de reformas institucionales en Bolivia”. Documento de Trabajo R-350. Washington: Banco Interamericano de Desarrollo.
Grootaert, C. and Narayan, D. (2004). Local Institutions, Poverty and Household Welfare in Bolivia. World Development, 32 (7), 1179-1198.
Hines, James R. and Thaler, Richard H. (1995). Anomalies: The Flypaper Effect. The Journal of Economic Perspectives, 9 (4), 217-226.
Inchauste, G. (2009). Decentralization in Bolivia: has it made a difference?. In E. Ahmad, y G. Brosio (Eds.), Does Decentralization Enhance Service Delivery and Poverty Reduction? (pp. 161-191). Cheltenham, UK: Edward Elgar Publishing.
Jin, Hehui; Qian, Yingyi and Weingast, Barry (2005). Regional Decentralization and Fiscal Incentives: Federalism, Chinese Style. Journal of Public Economics, 89, 1719-1742.
Kornai, Janos(1986). The Soft Budget Constraint. Kyklos, 39 (1), 3-30.
Kornai, Janos; Maskin, Eric and Roland, Gérard (2003). “Understanding the Soft Budget Constraint”, Journal of Economic Literature 41, 1095-1136.
Luján, M. (2004). “Gobernabilidad municipal: análisis de la aplicación del voto constructivo de censura”. In: Municipalización: diagnóstico de una década, (Tomo II, pp. 145-185). La Paz: Plural Editores – FES/ILDIS.
Martínez-Vázquez, Jorge and Timofeev, Andrey (2009). “Decentralization Measures Revisited”. Working Paper 09-13, Andrew Young School of Policy Studies, Georgia State University.
Ministerio de Autonomías (2011). Estado de situación sociodemográfica de los municipios de Bolivia (2005-2009). Observatorio Bolivia Democrática. La Paz: Editorial Presencia.
Musgrave, Richard (1959). “The Theory of Public Finance: A Study in Public Economy”. New York: McGraw-Hill.
North, Douglass(1990). Institutions, institutional change and economic performance. New York: Cambridge University Press.
Oates, Wallace E.(1972). Fiscal Federalism. New York: Harcourt Brace Jovanovich.
---------- (2005). Toward a second generation theory of fiscal federalism. International Tax and Public Finance, 12, 349-373.
O’Donnell, G. (1993). On the State, Democratization and Some Conceptual Problems: A Latin American View with Glances at Some Postcommunist Countries. World Development, 21 (8), 1355–1369.
O’Neill, K. M.(2003). Decentralization as an Electoral Strategy. Comparative Political Studies, 36 (9), 1068-1091.
---------- (2005). “Decentralizing the State: Elections, Parties, and Local Power in the Andes”. Cambridge: Cambridge University Press.
Programa de las Naciones Unidas para el Desarrollo, PNUD (2007). “El estado del Estado en Bolivia”. Informe Nacional sobre Desarrollo Humano, La Paz.
Prud’homme, Remy (1995). “On the Dangers of Decentralization”, World Bank Economic Review, 10 (2), 201-220.
Qian, Yingyi and Weingast, Barry(1997). Federalism as a commitment to preserving market incentives. Journal of Economic Perspectives, 11 (4), 83-92.
Reid, G. J. and Malik, W. H. (1994). Overview. In Chaudhry, S. A., Reid, G. J. y Malik, W. H. (Eds.), Civil Service Reform in Latin America and the Caribbean. Washington D.C., World Bank Technical Paper Number 259.
Roca, J. L.(2005). Fisonomía del regionalismo boliviano. La otra cara de la historia. Santa Cruz: Editorial El País, tercera Edición.
---------- (2007). “Estatalidad: Entre la Pugna Regional y el Institucionalismo”, Cuadernos de Futuro 21, Regiones y Poder Constituyente en Bolivia. Una Historia de Pactos y Disputas,
Rodríguez Ostria, G. (1995). “Estado y municipio en Bolivia: la Ley de Participación Popular en una perspectiva histórica”. La Paz: Ministerio de Desarrollo Sostenible y Medio Ambiente, Secretaría Nacional de Participación Popular.
Rojas Ortuste, G.(1997). “El diseño del Estado (y sociedad) pluralista. La construcción boliviana de la democracia”. In El pulso de la democracia: participación ciudadana y descentralización en Bolivia (pp. 211-238). Ministerio de Desarrollo Humano, Secretaría Nacional de Participación Popular. Caracas: Editorial Nueva Sociedad.
Villarroel-Böhrt, Sergio (2005). “Balanzas fiscales departamentales y costeo en la administración pública”. Estudio Nº 1 de la serie: Documentos de Trabajo hacia la Constituyente. La Paz: Plural Editores.
Weingast, Barry(1995). The economic role of political institutions: Market-preserving federalism and economic development. The Journal of Law, Economics and Organization, 11, 1-31.
---------- (2009). Second Generation fiscal federalism: The implications of fiscal incentives. Journal of Urban Economics, 65, 279-293.
Wiesner, Eduardo (2003). Fiscal Federalism in Latin America: From Entitlements to Markets. Washington: Inter-American Development Bank.
Wildasin, David (2004). The Institutions of Federalism: Toward an Analytical Framework. National Tax Journal, LVII (2), 247-272, Part 1.
