The role of policies in transforming regional fiscal structures: an exploratory analysis of spatial data from a policy of fiscal decentralization in Latin America

Abstract

One of the goals of decentralized policies is to consider the differences between regions and municipalities, which can lead to greater economic growth as well as greater economic development in all areas. However, endogenous limitations should also be overcome. For these purposes, policies have been designed and must therefore be evaluated in terms of the consequences. One of the most ambitious policies in Latin America in recent years has been the implementation of the ‘General Regalías system’ in Colombia. This paper will assess whether this policy has led to significant changes in the fiscal performance of the municipalities in the Valle del Cauca region, in which the most important city is Cali. We found that this policy was not able to change the ‘neighborhood contagion’ observed before implementation. This is an important conclusion of the study, which includes the spatial dependence to explain the fiscal performance of the municipalities. Through an exploratory analysis of spatial data (AEDE), we verified that the referenced system failed to reach its most ambitious objectives, raising the need for another type of public policy instrument.