Fiscal Federalism in Latin America: From Entitlements to Markets

by Wiesner, Eduardo; Wiesner Duran, Eduardo

• ISBN13: 9781931003483
• ISBN10: 1931003483
• Format: Paperback
• Copyright: 2003-08-01
• Publisher: Johns Hopkins Univ Pr

Summary

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.

Table of Contents

Introduction	p. 1
Overview: Conceptual Framework, Findings and Policy Implications	p. 5
Conceptual Framework	p. 5
The Evolution of Decentralization in Latin America	p. 10
Main Findings	p. 13
Conclusions	p. 23
Policy Implications and Recommendations	p. 24
Fiscal Federalism: From Public Choices to Market Processes	p. 29
Market Preserving and Public Choice Approaches to Fiscal Federalism	p. 33
The Market-Based Approach in Latin America	p. 36
Definition and Measurement of Decentralization	p. 38
The Evolution of Fiscal Federalism in Latin America	p. 41
Major Challenges of Decentralization	p. 45
Brazil	p. 55
The 1988 Constitution	p. 56
Fiscal Institutions	p. 58
The Deepening of Federalism	p. 59
Intergovernmental Transfers	p. 67
The Process of Municipalization	p. 67
Macroeconomic Context of Decentralization in the 1990s	p. 71
Regulatory Institutional Framework	p. 75
Decentralization in a Restrictive Macroeconomic Context	p. 76
Findings, Conclusions and Policy Implications	p. 78
Bolivia	p. 81
Macroeconomic and Fiscal Context	p. 82
Inter-Municipal Tax Decentralization	p. 86
Institutional Context	p. 89
Main Decentralization Challenges	p. 93
Main Findings and Conclusions	p. 97
Chile	p. 99
Macroeconomic Context	p. 100
Intergovernmental Decentralization Framework	p. 105
Main Decentralization Instruments	p. 106
Redistributive Framework	p. 108
Intergovernmental Tax Structure	p. 109
Findings and Conclusions	p. 114
Ecuador	p. 117
Institutional Framework	p. 120
Fiscal and Policy Consistency Framework	p. 122
Fiscal Obscurity and Surreptitious Transfers	p. 124
Fiscal Rigidity and Earmarking	p. 124
Decentralization Challenges	p. 126
Main Findings and Conclusions	p. 130
References	p. 132
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