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Fiscal Decentralisation in Colombia: New Evidence Regarding Sustainability, Risk Sharing and “Fiscal Fatigue”

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Listed:
  • Guillaume Bousquet

    (OECD)

  • Christian Daude

    (OECD)

  • Christine de la Maisonneuve

    (OECD)

Abstract

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. This Working Paper relates to the 2014 OECD Economic Survey of Colombia. (www.oecd.org/eco/surveys/economic-survey-colombia.htm) Décentralisation budgétaire en Colombie : Nouveaux résultats concernant la viabilité, le partage des risques et la « fatigue budgétaire » La Colombie s’est engagée dans un processus soutenu de décentralisation budgétaire au cours des dernières décennies. Ce papier analyse trois aspects de la performance budgétaire des départements Colombiens. Premièrement, il évalue la viabilité des finances infranationales en estimant une fonction de réaction budgétaire. Les résultats montrent que le cadre actuel est favorable à la viabilité budgétaire, particulièrement à la suite des réformes de la fin des années 1990 et du début des années 2000. Deuxièmement, le papier analyse l’impact des transferts et des royalties du secteur pétrolier et minier ainsi que l’effort des départements pour collecter leurs propres recettes fiscales. Dans l’ensemble, l’analyse démontre peu d’effet négatif des transferts du Gouvernement central sur les recettes fiscales des départements, ce qu’on appelle une « fatigue budgétaire ». Pour finir, l’analyse démontre un degré limité de partage des risques face à des chocs idiosyncratiques car les transferts du gouvernement central sont, le plus souvent, pro-cycliques. Ce document de travail se rapporte à l’Étude économique 2014 de l’OCDE sur la Colombie (www.oecd.org/fr/eco/etudes/etude-economique-colombie.htm).

Suggested Citation

  • Guillaume Bousquet & Christian Daude & Christine de la Maisonneuve, 2015. "Fiscal Decentralisation in Colombia: New Evidence Regarding Sustainability, Risk Sharing and “Fiscal Fatigue”," OECD Economics Department Working Papers 1202, OECD Publishing.
    • Handle: RePEc:oec:ecoaaa:1202-en
    DOI: 10.1787/5js30tzp18kj-en
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    References listed on IDEAS

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    1. von Hagen, Jürgen & Hepp, Ralf, 2000. "Regional risksharing and redistribution in the German federation," ZEI Working Papers B 15-2000, University of Bonn, ZEI - Center for European Integration Studies.
    2. Luiz de Mello, 2008. "Estimating a fiscal reaction function: the case of debt sustainability in Brazil," Applied Economics, Taylor & Francis Journals, vol. 40(3), pages 271-284.
    3. Luis Armando Galvis & Adolfo Meisel, 2012. "Convergencia y trampas espaciales de pobreza en Colombia: Evidencia reciente," Documentos de trabajo sobre Economía Regional y Urbana 177, Banco de la Republica de Colombia.
    4. Jonathan Rodden & Erik Wibbels, 2010. "Fiscal Decentralization And The Business Cycle: An Empirical Study Of Seven Federations," Economics and Politics, Wiley Blackwell, vol. 22(1), pages 37-67, March.
    5. Aida Caldera Sánchez, 2013. "Improving Fiscal Federal Relations for a Stronger Mexico," OECD Economics Department Working Papers 1078, OECD Publishing.
    6. Hansjörg Blöchliger & Balázs Égert, 2013. "Fiscal Consolidation Across Government Levels - Part 3. Intergovernmental Grants, Pro- or Counter-cyclical?," OECD Economics Department Working Papers 1072, OECD Publishing.
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    More about this item

    Keywords

    fatigue budgétaire; Finances infranationales; fiscal fatigue; fiscal reaction function; fonction de réaction budgétaire; partage des risques; risk sharing; royalties; royalties; subnational finances; transfers; transferts;
    All these keywords.

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations

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