Working Paper No.62
The Effects of Decentralisation on Public Investment:
Evidence and Four Lessons from Bolivia and Colombia
Jean-Paul Faguet
Crisis States Research Centre, LSE
June 2005
Hundreds of studies have failed to establish the effects of decentralisation on a number of important policy goals. This paper examines the cases of Bolivia and Colombia to explore decentralisation’s effects on government responsiveness and poverty-orientation. I first summarize economic data on the effects of decentralisation in each. In Bolivia, decentralisation made government more responsive by re-directing public investment to areas of greatest need. In Colombia, municipalities increased investment significantly as decentralisation deepened, while running costs fell. In both countries, investment shifted from economic production and infrastructure to social services and human capital formation. Resources were rebalanced in favour of poorer districts. The contrast between the two also highlights four important lessons. In order for decentralisation to work well, (i) local democracy must be free, fair, transparent and competitive; (ii) sub-national governments must face hard budget constraints; (iii) central government must be scaled back; and (iv) significant tax-raising powers must be devolved to the periphery. Where all four conditions obtain, decentralising resources and political authority can generate real accountability where none existed before, and improve the quality of government a society achieves.
Other Crisis States papers by Jean-Paul Faguet:
Working Paper No.29 (May 2003)
Decentralization and Local Government in Bolivia: an overview from the bottom up
(Jean-Paul Faguet)
Discussion Paper No.3 (January 2004)
Democracy in the Desert: Civil Society, Nation Building and Empire
(Jean-Paul Faguet)
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