OECD Economics Department Working Papers
Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.
The views expressed in these papers are those of the author(s) and do not necessarily reflect those of the OECD or of the governments of its member countries.
Fiscal Decentralisation in Colombia
New Evidence Regarding Sustainability, Risk Sharing and “Fiscal Fatigue”
Colombia has engaged in a sustained process of fiscal decentralisation over the past decades. This paper analyses three aspects of fiscal performance for Colombia’s departments. First, it studies the sustainability aspects of subnational finances by estimating a fiscal reaction function. Evidence is presented that the current framework is conducive to fiscal sustainability, especially after the reforms in the late 1990s and early 2000s. Second, the paper analyses the impact of transfers and oil and mining royalties and the effort to raise own tax revenues at the departmental level. Overall, there is little evidence of a negative effect of transfers from the central government on departmental tax revenue, the so-called “fiscal fatigue”. Finally, the paper presents evidence of a limited degree of risk sharing of departmental idiosyncratic shocks, as transfers from the central government are mostly pro-cyclical. This Working Paper relates to the 2014 OECD Economic Survey of Colombia. (www.oecd.org/eco/surveys/economic-survey-colombia.htm)
Keywords: fiscal fatigue, risk sharing, transfers, fiscal reaction function, royalties, subnational finances
H7: Public Economics / State and Local Government; Intergovernmental Relations;
C1: Mathematical and Quantitative Methods / Econometric and Statistical Methods and Methodology: General;
E62: Macroeconomics and Monetary Economics / Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook / Fiscal Policy