The Design and Administration of Intergovernmental

Historically, government in the Latin America and Caribbean Region has been highly centralized. In the past decade, a few countries have legislated devolution and sharing of important responsibilities to subnational governments, and, currently, most countries are either implementing that legislation or planning new decentralized arrangements. Paradoxically, decentralization, which reduces the powers of the central government, requires that the central government play a strong role in ensuring an appropriate enabling environment for its success. An important characteristic of decentralized government almost anywhere in the world is a system of intergovernmental transfers from the center to regional and local jurisdictions. These transfers serve many functions, including that of being a central government policy tool to ensure that decentralized services with important national public good characteristics or substantial interjurisdictional spillovers are provided and distributed efficiently and equitably. This study reviews the principles and practice of designing and administering sector- specific intergovernmental transfers. Resource constraints have required that the scope of the study be limited to selected issues and sectors. Thus, some important intergovernmental issues-- such as contributions of subnational governments to fiscal deficits, administrative difficulties local governments face in producing services, and strategies for implementing decentralization--are not treated in depth. Also, the study treats only intergovernmental policies and does not consider privatization as a policy option. The design of transfers and the resulting behavior of local governments is analyzed in three sectors--primary education, primary health care, and rural roads. Cross-sectional data on local governments in Chile and Colombia were assembled and analyzed for this