More than you can handle : decentralization and spending ability of Peruvian municipalities, Vol. 1 of 1

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More than you can handle : decentralization and spending ability of Peruvian municipalities

Author:	Loayza, Norman V.; Rigolini, Jamele; Calvo-Gonzalez, Oscar;	Collection Title:	Policy Research working paper ; no. WPS 5763
Country:	Peru;	Date Stored:	2011/08/17
Document Date:	2011/08/01	Document Type:	Policy Research Working Paper
Language:	English	Region:	Latin America & Caribbean
Report Number:	WPS5763	SubTopics:	Political Economy; Public Sector Expenditure Policy; Debt Markets; Subnational Economic Development; Municipal Financial Management
Volume No:	1 of 1

Summary: In the past three decades, emerging countries have gone through extensive decentralization reforms. Yet, there are no studies assessing quantitatively the relative importance of various factors known to affect the success of decentralization. This paper builds on a comprehensive dataset the authors constructed for Peru, which merges municipal fiscal accounts with information about municipalities' characteristics such as population, poverty, education, and local politics. The paper then analyzes the leading factors affecting the ability of municipalities to execute the allocated budget using complementary methodologies, from least squares to quantile regression analyses. According to the existing literature and the Peruvian context, the analysis divides these factors into four categories: the budget size and allocation process; local capacity; local needs; and political economy constraints. Although all four factors affect decentralization, the largest determinant of spending ability is the adequacy of the budget with respect to local capacity. The results confirm the need for decentralization to be implemented gradually over time in parallel with strong capacity building efforts.


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