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 fiscal challenge

Developing Chilean municipalities' financial capacities and accountability

This chapter is dedicated to fiscal challenges in the current context and with respect to further devolution or reorganisation of tasks. While there is a general propensity to limit financial public intervention, the chapter shows the extent to which public finances are particularly centralised in Chile. The first part of the chapter provides a comparative overview of Chile with Latin America and OECD countries, based on macroeconomic public finance indicators at national and subnational levels. The second part focuses on the diagnostic through a retrospective analysis which provides greater insight into the trajectories of municipal budgets. The third part examines the weaknesses of the Chilean local government finance system. It suggests ways to improve it in order to provide municipalities with the financial capacity to better exercise their responsibilities, looking at the grant and tax systems as well as the ways to diversify municipal revenue sources. Finally, the chapter provides options for reform of the current budgetary and fiscal framework in order to ensure greater transparency of municipal functioning, reinforce the responsibility and accountability of local elected representatives, and guarantee fiscal sustainability of public policies. It also includes recommendations for expanding municipal borrowing abilities in a prudent and controlled manner.


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