Decentralization in Colombia

Working Paper 2014-337

Abstract

Colombia’s decentralization was conceived to improve population’s access to social services, reduce poverty and equalize well-being across the territory. However, after more than 20 years of its implementation a big gap across municipalities still remains. This paper analyses the impact of the Colombia’s fiscal decentralization process over the achievement of social minimums as depicted by the average multidimensional gap and the multidimensional deprivation headcount. We implement an instrumental variable spatial autoregressive model with spatial autoregressive disturbances to take into consideration the spatial interrelated behaviour of deprivation in the Colombian context. This, while accounting for the endogeneity that arises when evaluating the impact of fiscal decentralization. We find strong statistically significant results across all the proven specifications that confirm causal diminishing effect of the share of own resources over multidimensional deprivation. Counterfactual scenarios of spatially differentiated decentralization policies highlight their grater effectiveness over geographically mute designs.

Authors: Juan Mauricio Ramirez, Yadira Diaz, Juan Guillermo Bedoya.