Subnational fiscal sustainability, risk sharing and “fiscal fatigue” in Colombia

• Christian Daude ^[1] ; Christine de la Maisonneuve ^[2]
  1. [1] Development Bank of Latin America (CAF)
  2. [2] Organisation for Economic Cooperation and Development (OECD)
• Localización: Hacienda Pública Española / Review of Public Economics, ISSN 0210-1173, Nº 219, 2016 (Ejemplar dedicado a: Public Economics in Latin America), págs. 137-160
• Idioma: inglés
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• Resumen

  • Colombia has engaged in a sustained process of fiscal decentralisation over the past decades. This paper analyses three aspects of fiscal performance for Colombia’s departments. First, it studies the sustainability aspects of subnational finances by estimating a fiscal reaction function. Evidence is presented that the current framework is conducive to fiscal sustainability, especially after the reforms in the late 1990s and early 2000s. Second, the paper analyses the impact of transfers and oil and mining royalties and the effort to raise own tax revenues at the departmental level. Overall, there is little evidence of a negative effect of transfers from the central government on departmental tax revenue, the so-called “fiscal fatigue”. Finally, the paper presents evidence of a limited degree of risk sharing of departmental idiosyncratic shocks, as transfers from the central government are mostly pro-cyclical.