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Asia-Pacific and Latin-America Interregional Forum on Managing
for Results
Fiscal Decentralization in LAC:
An overview
Vicente Fretes Cibils
May 20-22, 2013
Mexico City
Content
• Context
• Objectives
• Challenges
• Lessons
Context
• Decentralization
Political
Fiscal
Administrative
Context
• Measuring decentralization
Context
• Political and administrative decentralization
Number of countries with first time (year) of subnational elections in LAC
16
First time elections (countries)
14
5
12
10
8
2
States
Municipalities
6
10
4
2
7
1
2
2
2
Before 60s
1960-1979
1
0
1980-1989
1990-1999
Source: Daughters and Harper (2007) updated by Rafael de la Cruz
Recent: Uruguay (Municipalities 2010), Bolivia (2005) and Peru (2002) Estates
2000-2010
Context
• Political and administrative decentralization
Countries with subnational elections in LAC
Cummulative number of countries with
subnational elections
25
22
21
Municipalities
20
Estates
15
14
10
10
8
6
5
4
2
1
1
0
Before 60s
1960-1979
1980-1989
Source: Daughters and Harper (2007) updated by Rafael de la Cruz
Recent: Uruguay (Municipalities 2010), Bolivia (2005) and Peru (2002) Estates
1990-1999
2000-2010
Context
• Political and administrative decentralization
First time (year) of subnational elections in LAC
Country
Municipal
State
Country
Municipal
States
Argentina
1983
1983
Guatemala
1985
--
Bahamas
1997
--
Honduras
1982
--
Belize
1981
--
Mexico
1917
1917
Bolivia
1985
2005
Nicaragua
1992
--
Brazil
1982/85
1982
Panama
1995
--
Chile
2004
--
Paraguay
1991
1993
Colombia
1988
1991
Peru
1980
2002
Ecuador
1983
1983
Uruguay
2010
--
El Salvador
1985
--
Venezuela
1989
1989
Source: Daughters and Harper (2007) updated by Rafael de la Cruz
Recent: Uruguay (Municipalities 2010), Bolivia (2005) and Peru (2002) Estates
Context
• Fiscal decentralization
Subnational revenue and expenditure in LAC
11.0
10.5
Total Revenues
As percentage of GDP
10.0
Total Expenditures
9.5
9.0
8.5
8.0
7.5
7.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: IDB, Sub-National Database
Simple average of Selected countries - Argentina, Bolivia, Brasil, Chile, Colombia, Ecuador, México, Panamá and Perú
Context
• Fiscal decentralization
Subnational expenditure as percentage of General Government expenditure
North America*
49
Europe
25
36
8
21
South Asia
11
18
LAC
Africa
Middle east
18
South pacific
(*) Excludes Mexico
Source: World Bank and 2010, GOLD Report II, Local Government Finance: The Challenges of the 21st Century
North America, East-Asia, Europe, South Asia, Latin-America, Africa and Middle East (Mexico is in LAC)
East Asia
Context
• Fiscal decentralization
1980-1997 Indicators
Source: World Bank and 2010, GOLD Report II, Local Government Finance: The Challenges of the 21st Century
North America, East-Asia, Europe, South Asia, Latin-America, Africa and Middle East (Mexico is in LAC)
Context
• Regional fiscal decentralization
Subnational expenditure as percentage of General Government Expenditure
Focus of
decentralization
Intermediate level (state or
provinces)
Level of fiscal decentralization
(sub-national public expenditures/total, in %)
More than 20%
Between 10 and 20%
Argentina (49.3)
Brazil (47.2)
Mexico (32.1)
Venezuela (26.3)
Peru (18.9)
Colombia (44.0)
Bolivia (24.7)
Ecuador (18.2)
Uruguay (13.9)
Chile (13.4)
Honduras (12.3)
Guatemala (10.3)
Local level
(municipalities)
Source: IDB, Sub-National Database
Less than 10%
Trinidad Tobago (7.2)
Paraguay (6.2)
El Salvador (5.8)
Nicaragua (5.2)
Panama (3.2)
Dominican Rep. (2.9)
Costa Rica (2.6)
Barbados (0.0)
Bahamas (0.0)
Objectives
Decentralization
- Allocation efficiency
- Redistribution
- Stability
Growth
Objectives
• Fiscal decentralization and growth
Share of subnational expenditure versus economic growth in OECD
Sub-national Expenditures (% of total expenditures)
Source: Image from ThieBen 2000: Data IMF.
Challenges
• Governance
• Revenue mobilization
• Expenditure quality
• Debt
Challenges
• Governance
De-concentration
Coordination
Devolution
Autonomy
Challenges
• Revenue mobilization—High vertical imbalance
Central Government transfers as % of Subnational income (2006-2009)
Industrial (Average)
26
LAC (Average)
56
Bolivia
86
Mexico
78
Ecuador
68
Peru
55
Colombia
51
Argentina
48
Brazil
33
Chile
31
-
20
40
60
Source: Mininisterios de Finanzas de Bolivia, Ecuador, Peru, Argentina; INEG y SHCP
Para México; Ernesto Stein para Brazil; y DIPRES para Chile
80
100
Challenges
• Revenue mobilization in LAC
They depend heavily on direct transfers from central governments
Income structure of subnational governments in LAC
9
8
1.0
0.9
7
% of GDP
6
0.9
5
4
4.4
4.1
3.3
Others
Transfers
3
Own revenue
2
1
2.2
2.6
2.7
2000
2005
2010
0
Source: Ministerios de Finanzas de Bolivia, Ecuador, Perú, Argentina; INEG y SHCP
Para México; Ernesto Stein para Brasil; y DIPRES para Chile
Challenges
• Revenue mobilization in LAC
High dependency on direct transfers from central governments
Challenges
• Expenditure quality—Social
Selected social spending by Government level -1970-2000.
In percent of total government spending
Challenges
• Expenditure quality—Education
Seems to be more effective in centralized countries such as Chile
and Uruguay—higher scores in an international exam and more
efficient resource allocation
Education Quality and Efficiency in Latin America, 2006-2009
PISA Scores
Countries
Latin America & Caribbean
Argentina
Brazil
Chile
Colombia
Mexico
Uruguay
Source: CAF, 2012.
As % of Max. Score
76.0
70.3
71.0
78.7
70.5
74.9
76.8
Efficiency Index
Inputs &
Inputs only
Environment
0.94
0.81
0.86
0.92
0.86
0.83
0.95
0.94
0.81
0.86
0.90
0.88
0.85
0.93
Challenges
• Expenditure quality—Health
Also in health—the efficiency index show slightly better results for
the more centralized (and developed).
Health Indicators and Efficiency in Latin America, 2000-2009
Survival Rate
Countries
Per 1,000
Argentina
Bolivia
Brazil
Chile
Colombia
Mexico
Panama
Paraguay
Peru
Dominican Rep.
Trinidad & Tobago
Uruguay
Venezuela
Source: CAF, 2012.
982
928
971
990
977
978
975
973
968
964
965
984
979
Efficiency Index
(Inputs Only)
0.83
0.60
0.80
0.91
0.83
0.84
0.76
0.82
0.81
0.71
0.62
0.85
0.81
Life Expectancy at Birth
Years
75
65
71
78
72
75
75
71
72
72
69
75
73
Efficiency Index
(Inputs Only)
0.78
0.56
0.68
1.00
0.86
0.82
0.85
0.73
0.82
0.75
0.54
0.82
0.73
Challenges
• Debt
Subnational debt as percentage of GDP
8
Subnational debt as % of GDP
7
6
5
4
3
2
1
0
1996
2000
2005
Source: IDB, Sub-National Database
Simple average of Selected countries - Argentina, Bolivia, Brasil, Chile, Colombia, and México
2010
Lessons
• Governance
– Frameworks for transfers of responsibilities and
resources, coordination
• Revenue mobilization
– Conventional and alternatives
• Expenditure quality
– Performance based
• Debt
– Sub-national fiscal rules