Making Decentralisation Work in Chile

Towards Stronger Municipalities

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This report provides a comprehensive analysis of the challenges confronting Chile’s centralised growth model and recommendations towards developing a more integrated territorial approach, capable of mobilising regional productivity catch-up potential in order to strengthen the role of regions and municipalities.

The Chilean government has launched an ambitious decentralisation agenda, aimed at empowering municipalities by providing them with the legitimacy, financial resources, human capacities and tools required to improve their autonomy and performance. This study seeks to assist the government by covering several dimensions, looking at municipal responsibilities, fiscal and human resources, equalisation mechanisms, local public service performance,  citizen participation, and co-ordination mechanisms across levels of government.


The equity challenge

Can existing horizontal equalisation mechanisms reduce municipal fiscal disparities

This chapter focuses on the need to design more appropriate equalisation mechanisms, ones that go beyond the current system based on the Municipal Common Fund (FCM), a “compensation” system based on the horizontal redistribution of municipal resources across municipalities. This equalisation mechanism is commendable, however, it is not fully efficient and has some counter-productive effects on local and regional development. It should be complemented by other equalisation arrangements to combine solidarity and equity principles, as well as economic efficiency. Various avenues are proposed to help accomplish this, based on two approaches, in the short term through several adaptations of the current allocation rules and in a longer term approach through a more ambitious reform process, through more “verticalisation” and “regionalisation” of the mechanism.


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