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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.
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Fiscal Decentralisation and Public Investment
The Experience of Latin America
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- Luiz de Mello
- 06 Dec 2010
- Bibliographic information
Despite large differences across countries, Latin America’s average investment-to-GDP ratio and the overall quality of infrastructure in the region are relatively low by international comparison. Empirical evidence on the effects of fiscal decentralisation on investment based on a panel of Latin American countries since the late 1990 suggests that fiscal decentralisation discourages Latin American subnational governments from investing (acquiring fixed assets) and that lower subnational spending on investment is associated with lower economy-wide gross fixed capital formation. Latin American countries will therefore need to face a double challenge of revisiting the current arrangements for decentralised provision that discourage subnational governments from investing, while making the most of decentralisation as a policy lever to raise private investment.
- Latin America, public investment, decentralisation
- JEL Classification:
- H54: Public Economics / National Government Expenditures and Related Policies / Infrastructures; Other Public Investment and Capital Stock
- H77: Public Economics / State and Local Government; Intergovernmental Relations / Intergovernmental Relations; Federalism; Secession
- O54: Economic Development, Innovation, Technological Change, and Growth / Economywide Country Studies / Latin America; Caribbean