Decentralization, Fiscal Effort, and Social Progress in Colombia at the Municipal Level, 1994–2009: Why Does National Politics Matter?

Abstract

The present paper explores the relationship between political competition and effective public goods delivery systems in a decentralized context to study whether the awareness generated through such a competitive environment and the existence of more political options are a part of the causal mechanisms for effective governance. In particular, we want to observe the effect of electoral competition on the incentives to build fiscal capacity and provide public goods such as education and water, that are to a large extent the responsibility of the local municipalities. The research hypothesis is that political competition strengthens the decentralized municipalities through building their local fiscal capacity. In turn, the fiscal capacity is the fundamental variable that explains the differences in sector performance across local governments. Local fiscal capacity brings about better policy outcomes, as well as a better match between resources and the needs-what we call responsiveness-which simultaneously ensures greater efficiency in local spending. Using a rich panel municipal dataset from 1994 till 2009, we have shown that on comparing the differences across education and the water and sewerage sectors, the power of fiscal effort appears to be the driving force behind better policy outcomes than any other resource commonly made available to the municipalities, such as national transfers or royalties.

Political competition, electoral participation and local fiscal performance

“…The share of the different income sources has fluctuated somewhat but without any clearly visible trend changes. However, in absolute terms, both local spending and local revenue income have increased significantly during our period of analysis municipal revenue from their own resources increased from 1.5% to 2.5% of GDP during the period 1994--2009 (Sánchez Torres and Pachón, 2013).…”

“…With regard to Colombia, we are only aware of one existing study that explicitly aims to explore the impact of political competition on fiscal performance. Sánchez Torres and Pachón (2013) study the link between cadastral updates and political competition between 1994 and 2009. They find that local political competition is not significant, while a higher number of local candidates and parties competing for House votes at the national level leads to more frequently updated cadastres.…”