Capital Infrastructure and Equity Objectives in Decentralized Systems

All in all, in this paper we argue that disparities in the availability of and need for capital infrastructure matters for fiscal equity. However, we believe that a proper discussion of this topic should be framed in terms of the incidence of outputs and outcomes of public services produced with this infrastructure. Infrastructure alone cannot be assigned any policy priority independent of programs and services that utilize these capital assets. Once we place this discussion in the framework of access to and quality of public services, we then move to the question of the best form of policy intervention, which can be specific to capital inputs. Thus, we consider both pros and cons of addressing infrastructure disparities in an earmarked fashion—in the line of conditional capital grants still used in many countries— as opposed to incorporating capital infrastructure disparities into a general-purpose equalization grant—which is not explicitly done in many countries. The rest of this paper is organized as following. In the next section we make a normative case for addressing infrastructure needs in intergovernmental arrangements. Then, we examine how and to what extent those capital disparities are addressed in practice using three country cases (Peru, Russia, and Spain). Next, we discuss some policy implications. We conclude with a summary of the issues and final comments.