Abstract
The chapter explores the relationship between political competition and effective public goods delivery systems in a decentralized context to study whether the awareness generated through such a competitive environment and the existence of more political options are a part of the causal mechanisms for effective governance. In particular, we want to observe the effect of electoral competition on the incentives to build fiscal capacity and provide public goods, such as education and water, that are, to a large extent, the responsibility of the local municipalities. The research hypothesis is that political competition strengthens the decentralized municipalities through building their local fiscal capacity. In turn, the fiscal capacity is the fundamental variable that explains the differences in sector performance across local governments. Local fiscal capacity brings about better policy outcomes, as well as a better match between resources and the needs—what we call responsiveness—which simultaneously ensures greater efficiency in local spending. Using a rich panel municipal data set from 1994 to 2009, we have shown that on comparing the differences across education and the water and sewerage sectors, the power of fiscal effort appears to be the driving force behind better policy outcomes than any other resource commonly made available to the municipalities, such as national transfers or royalties.
This chapter is a reduced version of the Interamerican Development Bank (IDB) Working Paper No. IDB-WP-396, available at http://bit.ly/1AK0PfO. The authors would like to thank the Global Development Network and all the participants at the workshops held during the course of this project for their support and comments. They would specially like to thank Ramona Angelescu, Guillermo Perry, Matthias Krause, Jean Paul Faguet, and Ben Ross Schneider for their very useful and insightful commentsthat helped advance the ideas that were put forth. The authors also thank Sandra Margarita Zamora, Susana Rubinstein, and Santiago de la Cadena for their research assistance, and finally they acknowledge the help given by the Social Sciences Faculty at Universidad de los Andes.
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Notes
- 1.
The periods of mayors and governors changed to three-year term after 1994, and to four-year terms in 2003.
- 2.
Before the reform, royalties would automatically be transferred to municipalities in which the extraction of resources was done. In June 2011 the Royalties Reform was approved in Congress, transforming the way in which they were regionally allocated. Instead of just transferring those to municipalities, sub-national entities need to compete for the resources by presenting projects which, in turn, need to be approved by entities with representation from the national, departmental, and local tiers of government.
- 3.
In order to increase the efficiency of resource transfers, a reform of the system was undertaken in 2000. In the first place, it created a revenue sharing system (Sistema General de Participaciones, or SGP) that fixed the amount of resources to be transferred and established a 2 percent annual growth in real terms. In addition, the formula to allocate the resources across sub-national entities based on Law 60 of 1993 was also changed by the Laws 715 of 2001 and 1176 of 2007.
- 4.
According to Rodden (2002), large and persistent deficits occur when the sub-national governments depend strongly on inter-governmental transfers, and have, at the same time, free access to credit, generating fiscal indiscipline.
- 5.
As a matter of fact, the territorial debt rose from 1.1 to 3.5 percent of the GDP between 1990 and 1999 (Ministerio de Hacienda 2014). In an effort to better align incentives of politicians to improve their policy performance, the Law 715 determined that the transfer’s distribution would be based on the coverage and growth of the health and education services provided by the territorial entities, and not by population and poverty rates—criteria that had been established by Law 60 of 1993. Concerning the generation of own resources, Congress approved Law 488 of 1998 whereby the base for some sub-national taxes such as the register tax was increased, and Law 1111 of 2006, which raised cigarette taxes. In order to augment health revenues, Decree 127 of 2010 increased the rates of the departmental cigarette and liquors tax, as well as VAT for beer and gambling. Furthermore, the gasoline surcharge was unified, and a surcharge on petro-diesel was levied.
- 6.
According to Rodriguez (2010), the lack of adequate data may explain why the results have suggested both positive and negative impacts of decentralization. Using panel data techniques, she evaluates the effects of decentralization on the quality of education in public schools, concluding that reforms increase the gap in the results of standardized test preparation applied in public and private schools. She argues that the results are driven neither by the lack of transfers from central government nor by the lack of investment of resources in the sector. They are mainly driven by the increased enrollment of poor students in public schools. When this factor is controlled for, it is found that the public education system serves a larger number of students, besides offering better quality education.
- 7.
Law 142 of 1994, Article 15. Other changes introduced by Law 142 were (a) the definition of a pricing regime based on the cost of providing the service, (b) the creation of a control mechanisms of the provider performance enforced by citizens, (c) establishment of a regime of free enterprise which constitutes the base for the entry of the private sector as a provider, and (d) for the implementation of management control and internal control systems within the provider companies. See Krause (2007) for a complete explanation of the differences between EICEs and ESP.
- 8.
Also, the Colombian system of user’s fees follows a cross-subsidization approach in which residential users from low socio-economic strata (1, 2, and 3) receive discounts in their fees, which are covered by fees charged from the high socio-economic strata (5 and 6) as well as by the commercial and industrial users. Due to the deficit nature of the scheme in most municipalities, central government transfers partially finance these subsidies. The remaining resources cover a fraction of the investments needed to provide the services, either through direct subsidies to the provider—that could be municipality itself—or through the delivery of physical infrastructure (Silva 2007).
- 9.
“En ese entonces, casi que todos los cargos adscritos a la prestación de estos servicios eran de cuotas políticas. Entonces, que las escobitas: vaya usted, vaya usted; que la persona que se encargaba de la facturación. Personas que no tenían ni idea que tenían que hacer en un cargo de esos y era así como se colocaban las posiciones de los cargos en una empresa de pequeña estructura que tenía el municipio. No había políticas claras, no había directrices, el servicio era prácticamente regalado: la gente pagaba 20 pesos por el agua.” Manager, Water Company of el Peñol, Antioquia.
- 10.
Referring to the municipalities in which the service is provided by private parties, the manager of the Water Company of El Peñol argued; “Los alcaldes generan compromisos con ese tipo de gente y vienen, ese modelo es perverso, muchas veces esa gente viene y esa gente de lo que tratan es de escurrir al usuario. Finalmente vienen, lo clavan con unas tarifas exorbitantes, le sacan el jugo al negocio, no hacen ninguna inversión y salen y se van con la plata. Entonces yo pienso que una entidad pública, siempre y cuando, se logre manejar con cierta autonomía administrativa, financiera, con cierta independencia del tema político, si se maneja así se puede manejar con unos criterios de rentabilidad más que, o sea una rentabilidad económica que le permita ser auto sostenible en el tiempo.”
- 11.
This is the term used by politicians to refer to the effort to get money from the national government.
- 12.
“Básicamente una buena administración en este municipio se hace con gestión. Por eso les decía yo ahora que aspiramos a ser una de las mejores administraciones que haya tenido el municipio de Santa Barbara por la coyuntura que tenemos a León Darío en la Cámara. Porque aparte de todo, él pertenece a la comisión tercera, que como ustedes bien saben es la de presupuesto y eso le da ciertas ventajas frente a algunos representantes porque ser ponentes y participar en las ponencias del presupuesto, les dan algunos incentivos.”
- 13.
Several specifications were estimated for the years to the last cadastral update: lineal, quadratic, cubic, and diverse forms of dummy variables for the number of cadastral updates.
- 14.
The measure of the effective number of parties is the inverse of the Herfindal Index to measure the competition among party shares of votes. The unit of analysis is the political party.
- 15.
The GINI is a measure of statistical dispersion and measures the concentration across political parties. Thus, if one party controls all the votes for the House, the “political concentration” is highest (GINI of 1). If more parties do, then the “political concentration” goes down.
- 16.
This is the same measure as the effective number of parties, but instead of taking the party as a unit of analysis each candidate is counted independently.
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Appendix 1: Data sources
Appendix 1: Data sources
Variable | Source |
|---|---|
2005 Water coverage | 2005 Colombian Population Census, National Statistics Administrative Department (DANE) |
Quality-local drinking water compliance | Territorial Development Office, National Planning Department (DNP) |
Public school enrollment | Planning Office of the Education Ministry and DANE |
Quality—ratio of SABER 11 of public to private schools | Scores from the SABER 11 test, Colombian Institute for Education Evaluation (ICFES) |
Per-capita taxes | Municipal Budgetary Executions, DNP |
Per-capita transfers | Municipal Budgetary Executions, DNP |
Royalties | Municipal Budgetary Executions, DNP |
Number of years after the reform | Public Services Superintendence |
Poverty rate | For 1993 and 2005 the data were taken from the 1993 and 2005 Population Census done by the DANE. For the other years the poverty rate was calculated by CEDE |
Gini of land value | The data were taken from the Geographical Institute Agustín Codazzi and calculated by CEDE |
Population | 2005 Colombian Population Census, DANE |
Effective Number of Parties | Electoral data for each of the years since 1994 from Registraduría Nacional del Estado Civil |
Council members re-election average | Electoral data for each of the years since 1994 from Registraduría Nacional del Estado Civil |
Intra-party competition | Electoral data for each of the years since 1994 from Registraduría Nacional del Estado Civil |
Proportion of council members from mayor’s party | Electoral data for each of the years since 1994 from Registraduría Nacional del Estado Civil |
Cadastral undervaluation | The data were taken from the Geographical Institute Agustín Codazzi and calculated by CEDE |
Teacher–student ratio (lagged) | Planning Office of the Education Ministry |
6-year average teacher–student ratio (lagged) | Planning Office of the Education Ministry |
No official students–population ratio (lagged) | Planning Office of the Education Ministry |
Per-capita transfers (ln) | Territorial Development Office, National Planning Department (DNP) |
Royalties (ln) | Territorial Development Office, National Planning Department (DNP) |
Number of years after the reform | Public Services Superintendence |
Students–population ratio | Planning Office of the Education Ministry |
Public test score | Colombian Institute for Education Evaluation (ICFES) |
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Torres, F.S., Pachón, M. (2017). Decentralization, Fiscal Effort, and Social Progress in Colombia at the Municipal Level, 1994–2009: Why Does National Politics Matter?. In: Perry, G., Angelescu Naqvi, R. (eds) Improving Access and Quality of Public Services in Latin America. Latin American Political Economy. Palgrave Macmillan, New York. https://doi.org/10.1057/978-1-137-59344-3_3
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