Fiscal Federalism in Latin America: From Entitlements to Markets

Abstract

This volume emerged from an evaluation commissioned by the IDS Office of Evaluation and Oversight (OVE) to examine the institutional factors that determine the effectiveness of the Bank's decentralization strategy and oper- ations, as well as the specific results achieved by the countries at the sector or project levels. The author, a Colombian economist, was asked to examine the intergovernmental decentralization frameworks and some decentralization- intensive loans in Brazil, Bolivia, Chile and Ecuador. It was felt that these four countries, with their different policy contexts and particular political histo- ries, could provide valuable insights on the factors that shape decentralization results and outcomes. The evaluations were completed in mid-2002. As the author points out, the Bank's efforts to support decentralization policies and projects have proven to be quite a challenge. After all, while decentralization and fiscal federalism are powerful reform instruments, they also affect a country's key political and institutional pillars. Furthermore, to be successful, decentralization demands compliance with difficult-to-meet conditions at the macroeconomic and fiscal levels, as well as at the micro- institutional and local levels. In short, decentralization demands a whole new set of institutional rules and incentives, which take time and strong political will to develop. The