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.
- ISSN: 18151973 (online)
- https://doi.org/10.1787/18151973
Fiscal Decentralisation and Public Investment
The Experience of Latin America
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.
Keywords: decentralisation, public investment, Latin America
JEL:
H77: Public Economics / State and Local Government; Intergovernmental Relations / Intergovernmental Relations; Federalism; Secession;
H54: Public Economics / National Government Expenditures and Related Policies / National Government Expenditures and Related Policies: Infrastructures; Other Public Investment and Capital Stock;
O54: Economic Development, Innovation, Technological Change, and Growth / Economywide Country Studies / Economywide Country Studies: Latin America; Caribbean
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