Intergovernmental transfers and fiscal effort in Peruvian local governments

Aragon, Fernando and Gayoso, Vilma (2005): Intergovernmental transfers and fiscal effort in Peruvian local governments.

Abstract

The purpose of this paper is to identify the causal relationship between intergovernmental transfers and fiscal effort. Empirical evidence from Peruvian municipalities supports a negative relation. The substitution effect is decreasing on the level of municipalities’ expenditure and tends to disappear for high-expenditure localities. Given this phenomenon, devolving responsibilities to sub-national governments might reduce fiscal effort and deteriorate fiscal balance especially among localities with lower fiscal capacity. A possible solution might be the inclusion of fiscal effort indicators in the intergovernmental transfer design.

• Item Type: MPRA Paper
• Institution: Universidad del Pacifico
• Language: English
• Keywords: fiscal effort; intergovernmental transfers; fiscal decentralization; local taxation
• Subjects: H - Public Economics > H7 - State and Local Government ; Intergovernmental Relations > H71 - State and Local Taxation, Subsidies, and Revenue; H - Public Economics > H7 - State and Local Government ; Intergovernmental Relations > H77 - Intergovernmental Relations ; Federalism ; Secession

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