Fiscal Federalism in Latin America: From Entitlements to Market

Fiscal Federalism in Latin America: From Entitlements to Market

by Eduardo Wiesner




Fiscal and political decentralization have transformed several Latin American countries over the past two decades, but the transformation has hardly been smooth. At times, unbridled expansion of unconditional transfers has led to macroeconomic instability and principal-agent problems have made public sector management cumbersome. Most worrisome, despite a consensus that decentralization can strengthen public sector performance, social development and democracy, its results have not matched expectations.

Fiscal Federalism in Latin America: From Entitlements to Markets examines decentralization policies that work as well as those that do not. The aim is to help Latin American policymakers meet the challenge of decentralization to improve public sector performance at all levels of government by appropriately assigning jurisdiction over public goods, services, tax authority and user charges.

The book offers "building blocks"towards decentralization, including new theoretical developments and accepted lessons on how government interventions can use market proxies to enhance effectiveness; the importance of market-based decentralization approaches; and recent contributions from new institutional economics, public choice theory and the "new theory of the firm,"which holds that political jurisdictions can be thought of as pseudo-firms. The final building block is the findings of evaluations of decentralization in Brazil, Bolivia, Chile and Ecuador. The case studies ensure a balance between empirical research and theoretical context and have important implications for policymakers interested in making decentralization more effective.

Product Details

ISBN-13: 9781931003483
Publisher: Inter-American Development Bank
Publication date: 08/01/2003
Series: Inter-American Development Bank Ser.
Pages: 200
Product dimensions: 5.98(w) x 9.02(h) x 0.40(d)

About the Author

Eduardo Wiesner is a Colombian economist and a consultant to the Inter-American Development Bank and other multilateral as well as government institutions.

Table of Contents

Chapter 1Overview: Conceptual Framework, Findings and Policy Implications5
Conceptual Framework5
The Evolution of Decentralization in Latin America10
Main Findings13
Policy Implications and Recommendations24
Chapter 2Fiscal Federalism: From Public Choices to Market Processes29
Market Preserving and Public Choice Approaches to Fiscal Federalism33
The Market-Based Approach in Latin America36
Definition and Measurement of Decentralization38
Chapter 3The Evolution of Fiscal Federalism in Latin America41
Major Challenges of Decentralization45
Chapter 4Brazil55
The 1988 Constitution56
Fiscal Institutions58
The Deepening of Federalism59
Intergovernmental Transfers67
The Process of Municipalization67
Macroeconomic Context of Decentralization in the 1990s71
Regulatory Institutional Framework75
Decentralization in a Restrictive Macroeconomic Context76
Findings, Conclusions and Policy Implications78
Chapter 5Bolivia81
Macroeconomic and Fiscal Context82
Inter-Municipal Tax Decentralization86
Institutional Context89
Main Decentralization Challenges93
Main Findings and Conclusions97
Chapter 6Chile99
Macroeconomic Context100
Intergovernmental Decentralization Framework105
Main Decentralization Instruments106
Redistributive Framework108
Intergovernmental Tax Structure109
Findings and Conclusions114
Chapter 7Ecuador117
Institutional Framework120
Fiscal and Policy Consistency Framework122
Fiscal Obscurity and Surreptitious Transfers124
Fiscal Rigidity and Earmarking124
Decentralization Challenges126
Main Findings and Conclusions130

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