02
Collection of Studies
into Local and Regional
Public Policies
on Social Cohesion
Local Financing and Taxation
in Latin America
Local Financing and Taxation
in Latin America
02
Collection of Studies
into Local and Regional
Public Policies
on Social Cohesion
Clemente Ruiz Durán
Professor at the School of Economics
of the National Autonomous University
of Mexico (UNAM) since 1978 and
full-time tenured professor since
1982. He is also a member of the
National System of Researchers (Level
III). He graduated in Economics from
Anáhuac University (1967-1972) and
subsequently specialised in Welfare
Institutions, at Uppsala University
in Sweden (1971). He received his
doctorate from the University of
Pittsburgh in the United States (1975).
In 2004, he was awarded an honorary
doctorate by the University of Baja
California (Mexico).
This document has been produced within
the framework of a European Union
grant. The content of this document is
the exclusive responsibility of the author
and should not in any way be considered
a reflection of the position held by the
European Union.
Editor: URB-AL III Programme
Còrsega, 273-279 08008 Barcelona
Tel. +34 934 049 470
Fax +34 934 022 473
E-mail [email protected]
www.urb-al3.eu
© Publisher: Diputació de Barcelona
(URB-AL III Programme Orientation
and Coordination Office)
Editorial Board: Agustí Fernández de
Losada, Octavi de la Varga, Eduardo
Feldman, Carla Cors, Víctor Godínez and
Verónica Sanz
Editing: Directorate of Communication,
Diputació de Barcelona
Design: Estudi Josep Bagà
Printing: DRG
LD: B. 14929-2012
Local Financing and Taxation
in Latin America
Clemente Ruiz Durán
Table of contents
11Preface
13Introduction
151. Building dialogue around social cohesion: the European Union and
Latin America
232. Latin America and the European Union: two inequalities to reflect on
313. The debate on macro-balances, democracy and social cohesion models
474. Territorial development in democracy: decentralised public finance
675. The debate on transfers: the path of concerted decentralisation in
Latin America
876. Latin America: welfare levels, decentralisation of basic services,
overview and initial efforts to assess the impact
1297. Latin America: an analysis of the impact of decentralised expenditure
on building productive capacities
149Conclusions: at the start of an agenda for democratic strengthening
153 Bibliography
List of tables, charts and diagrams
Tables
27Table 1. Latin America: government revenue and expenditure (% of GDP)
28Table 2. European Union: government revenue and expenditure (% of GDP)
35 Table 3. Latin America: budget powers of the legislature and of the executive
37Table 4. European Union: governmental organisation and representatives of the
European Parliament
39Table 5. Latin America: public social expenditure as a percentage of gross
domestic product (GDP)
40Table 6. European Union (19): public social expenditure as a percentage of gross
domestic product (GDP)
42Table 7. Latin America: structure of social expenditure by budget item (base year
2006)
45Table 8. Latin America. Indicators of coverage and public expenditure on
Conditional Transfer Programmes, 2007 to 2010
48Table 9. Latin America: political structure for territorial governance
50Table 10. Latin America: expenditure of sub-national governments as a % of
GDP and as a % of public sector expenditure
51Table 11. European Union (27): expenditure and revenue by level of government
(% of GDP)
54Table 12. Structure of the total revenue of sub-national governments, 2008, as a
% of total GDP
56 Table 13. Latin America: allocation of fiscal powers by level of government
59 Table 14. Public expenditure by level of government in Argentina, Brazil and .
Mexico, 1994-2009
6
7
60Table 15. Argentina: structure of the total expenditure of the provinces, yearly
averages from 1996-2006
62Table 16. Brazil: structure of state expenditure by large groups, yearly averages
from 1996-2006
64Table 17. Mexico: structure of the gross total expenditure of federative
institutions, yearly averages from 1996-2006
73Table 18. Argentina: own revenue and transfers to the provinces
74Table 19. Brazil: transfers to states and municipalities, 2010
78Table 20. Chile: public revenue as a % of GDP
82 Table 21. Mexico: shares in federal revenue and contributions paid to states,
municipalities and Federal District from January to December 2010
84Table 22. Factors conditioning transfers and type of decentralisation
87Table 23. Infant mortality ratio (per 1,000 live births)
88 Table 24. Maternal mortality ratio (per 100,000 births)
89 Table 25. Improved sources of drinking water (% of population with access)
90 Table 26. Life expectancy at birth (years)
91 Table 27. Primary education completion rate (% of the total)
92 Table 28. Latin America, selected countries: principal areas of decentralised
expenditure
93 Table 29. Brazil: literacy in persons aged 15 years and above (percentage)
94 Table 30. Brazil: coverage of basic education (percentage)
96 Table 31. Brazil: infant mortality ratio (under one year of age)
97 Table 32. Brazil: percentage of homes with access to drainage and electricity
99 Table 33. Brazil: percentage of people living in homes with access to drinking
water and a solid floor
101 Table 34. Brazil: reduction of poverty, 2005-2009
103 Table 35. Chile: coverage of basic education (% of students of typical age)
104 Table 36. Chile: coverage of public health services (% of total population)
105 Table 37. Chile: people living in poverty (% of total population)
106 Table 38. Chile: coverage of basic services (% of total homes with access to the
service)
107 Table 39. Chile: life expectancy at birth (years)
108 Table 40. Chile: average schooling of the population aged 15 and above (years)
111 Table 41. Mexico: literacy rate
112 Table 42. Mexico: coverage of primary and secondary education
114 Table 43. Mexico: average level of schooling
116 Table 44. Mexico: infant mortality ratio (under one year of age)
118 Table 45. Mexico: life expectancy at birth
119 Table 46. Mexico: coverage of health services
121 Table 47. Mexico: evolution of the coverage of basic services and conditions in
homes
123 Table 48. Mexico: evolution of the Gini coefficient, 2000-2008
132 Table 49. Latin America: contribution of SMEs (% of total)
140 Table 50. Brazil: sub-national business development (number of businesses)
141 Table 51. Mexico: sub-national business development (number of businesses)
8
.
.
.
Charts
23 Chart 1. Latin America: size of its economies, 2009
24 Chart 2. The European Union: size of its economies, 2009
25 Chart 3. Sigma Convergence: Latin America and the European Union
25 Chart 4. GDP per capita in the European Union and Latin America
26 Chart 5. Latin America: unequal regions
32 Chart 6. Restructuring of public and trade deficit from 1990 to 2010
33 Chart 7. European Union (27): deterioration of the fiscal situation
34 Chart 8. European Union (27): public deficit, featuring representation of the
.
cohesion process
52 Chart 9. European Union (27): local government expenditure as a proportion of
.
GDP
57 Chart 10. Latin America: tax revenue by level of government, 2008 (as a % of .
GDP)
125 Chart 11. Impact of decentralisation on infant mortality
126 Chart 12. Students who reach the final grade of primary education
127 Chart 13. Spending and inequality, an approach based on the Gini coefficient
143 Chart 14. Brazil: impact of decentralised expenditure on the generation of
..
economic units, 2000-2006
144 Chart 15. Brazil: impact of decentralised expenditure on the generation of
added value, 2000-2006
144 Chart 16. Brazil: impact of decentralised expenditure on the generation of
employment, 2000-2006
145 Chart 17. Mexico: impact of decentralised expenditure on the opening of
.
economic units, 2003-2008
146 Chart 18. Mexico: impact of decentralised expenditure on the growth of added
.
value, 2003-2008
146 Chart 19. Mexico: impact of decentralised expenditure on the accumulation of .
capital, 2003-2008
147 Chart 20. Mexico: impact of decentralised expenditure on the generation of ...
employment, 2003-2008
Diagrams
.
20 70 72 76 77 80 81 84 Diagram A. Latin America: the path to decentralisation
Diagram 1. Financing of decentralisation
Diagram 2. Argentina: main federal transfers
Diagram 3. Brazil: main federal transfers
Diagram 4. Chile: main transfers to municipalities
Diagram 5. Mexico: transfer from federal government (shares)
Diagram 6. Mexico: transfer from federal government (contributions)
Diagram 7. Latin America: system of transfers
9
Preface
The series Studies into Local and Regional
Public Policies on Social Cohesion
has been produced by the URB-AL III
Programme Orientation and Coordination
Office. Its aim is to explore the current
situation with regard to a set of core
problems in the present agenda for
political bi-regional European UnionLatin American discussions on social
cohesion. This second issue deals with the
subject of local taxation and financing
and its relation with social cohesion.
Local governments have the job of
fostering territorial development,
improving people’s quality of life and
answering public demand for basic
services. They are also increasingly
providing public responses to a series of
social problems for which they are not
legally responsible. Local governments
in practice are therefore making up for
shortfalls that originate at higher levels
of government. Local administrations
are also increasingly required to provide
territorial responses to problems of an
international nature. However, in contexts
typified by insufficient public resources,
particularly from taxation, either collected
locally or on a nationwide basis, it is very
hard to provide quality local responses to
deal with this series of challenges.
ever important question of what should
be done to enhance the efficiency and
effectiveness of local tax collection should
not be neglected, there is also a political
need to tie reflections on local taxation
and financing to other problems: first, to
the quality and the performance of the
taxation systems to which they belong;
second, to the real status and workings of
intergovernmental relations; and third, to
how the decentralisation agenda stands.
Improvements in financing local public
policies in order to enhance territorial
social cohesion requires progress in
all areas. Debate on local financing
and taxation is therefore a core part
of the current agenda of political and
institutional challenges that must be dealt
with in order to increase the quality of
public responses to problems that threaten
social cohesion in Latin America.
Agustí Fernández de Losada, Director of
International Relations at Diputació de
Barcelona and General Coordinator of the
URB-AL III Programme Orientation and
Coordination Office.
Given that the financial resources
available to local governments condition
their scope and performance, reflection
on matters of local taxation and
financing is a political necessity. Most
local resources come from shared taxes
and from intergovernmental transfers
(whether earmarked or not). Although the
10
11
Introduction
This document has been produced within
the URB-AL III Program, a regional
cooperation programme run by the
European Commission with Latin America,
the aim of which is to help increase the
level of social and territorial cohesion in
sub-national and regional communities in
Latin America
URB-AL III has generated a series of
documents that have enhanced the
understanding of the problems associated
with social cohesion and have been
generated on the basis of other documents
produced in the previous phase of the
programme. Of particular significance
are the documents by Godínez (2007 and
2009) ‘Social cohesion and decentralised
cooperation. The European-Latin
American experience’ and ‘Local policies
for social and territorial cohesion in
Latin America in an environment of
international financial crisis.’ Both
describe the context of social cohesion
in the region and the way in which
decentralised cooperation can help to
achieve it. Against this background, this
document intends to analyse how the
Latin American region has attempted to
strengthen local development through
fiscal decentralisation, and the impact that
this has had on different social cohesion
indicators. This should provide the URBAL Programme with elements with which
it can focus its work of cooperation with
the region.
12
13
1. Building dialogue around social cohesion:
the European Union and Latin America
In November 2010, the European Union
issued its fifth report on economic, social
and territorial cohesion entitled
‘Investing in Europe’s future.’ In this
report, the European Commissioner for
Regional Policy and the European
Commissioner for Employment, Social
Affairs and Inclusion stated: ‘The Union,
especially during these difficult times,
needs Cohesion Policy. It needs a policy
that can make the investments that will
help the Union and its regions emerge
from the crisis, reduce disparities, and
contribute to meeting the ambitious
objectives of the Europe 2020 strategy.
Cohesion Policy has already helped to
improve economic, social and
environmental conditions within our
Union, as shown by our evaluations.
However, these same evaluations
concluded that focusing on a few key
priorities, especially in the more
developed regions, would be more
effective. Therefore, Cohesion Policy
should become more selective.’1 This
European Union outlook underlines the
need to redesign cohesion strategy, to
base it on a limited number of goals for
each programme and to closely monitor
the progress made. ‘In the current period,
Cohesion Policy has already been closely
aligned with the objectives of the Lisbon
Strategy. The link to the Europe 2020
strategy must be even stronger in the
future. This requires putting in place
good programmes, with clear conditions
1 EU European Commission (2010). ‘Investing in
Europe’s future. Fifth report on economic, social
and territorial cohesion.’
14
and strong incentives. Pre-conditions
could require, for example, that
investment in environmental
infrastructure is preceded by a
transposition of the relevant EU
environmental legislation. Incentives
would reward regions and countries that
have performed well and reached agreed
European objectives.’
This assessment of what has occurred in
the European Union in the midst of the
crisis and the results of cohesion policy
point to an institution capable of
evaluating the impact of policies and
able to make corrections along the way.
This contrasts with the lack of
institutional models assessing cohesion
policy in Latin America. The basic
difference lies in the fact there is no
supranational mechanism responsible for
cohesion policies, as there is in Europe.
However, a series of agreements
gradually reached by the region’s
governments has sought to make social
cohesion a core feature of economic
policy. This has been enhanced by
relations with the European Union
through the establishment of a series of
summit meetings held with a view to
evaluating progress made in economic
cohesion, fighting poverty, and in
equality and social justice. The first was
held in Rio de Janeiro, Brazil, in 1999;
the second in Madrid, Spain, in 2002; the
third in Guadalajara, Mexico, in 2004;
the fourth in Vienna, Austria, in 2006
(the main aim of which was to establish,
by 2010, a Euro-Latin American Free
Trade Area); the fifth was held from 13
to 17 May 2008 in Lima, Peru, and
15
sought to create an association of social
areas, of knowledge and of achievement
in sustainable development, and a
strategic association between Latin
America and Europe, based on the
assertion that social cohesion is a
priority issue that must be tackled by the
governments of both regions in order to
overcome the problems arising from
poverty, social inequality and exclusion.
These are the problems that hinder
sustainable economic growth and quality
democracy in Latin American countries.
Article 11 of the Lima Declaration states:
‘We confirm that the fight against
poverty, inequality and exclusion in
order to achieve or increase social
cohesion is a key policy priority of the
strategic partnership between our
regions. They remain an important focus
for our dialogue and cooperation at
national, sub-regional and regional level.
We reiterate the primary responsibility of
our governments, cooperating with all
relevant actors, among them civil society,
to implement policies towards this
objective.’ The sixth summit, held in
Madrid from 17 to 19 May 2010 and
entitled ‘Innovation and technology for
sustainable development and social
inclusion,’ saw the establishment of three
trade agreements, the creation of a
foundation, a line of financing and
strengthening of bi-regional political
dialogue.
Since the Rio de Janeiro Summit (1999),
social cohesion has thus become the
focus of relations and political dialogue
between the European Union and Latin
America. It is however evident that social
16
cohesion is not solely a matter of
guaranteeing access to basic social
services, but also the series of policies
geared to fostering equal opportunities,
active citizen participation and peaceful
coexistence among heterogeneous
groups. Against this background, five
policy sectors were defined: (i)
productive-occupational; (ii) social:
universal access to basic social services
and public security; (iii) reduction in
territorial imbalances; (iv) construction
of active citizenship; (v) strengthening of
institutions and local taxation systems.
The following social cohesion criteria
were also added: (i) equality and social
inclusion; (ii) belonging; (iii) recognition;
(iv) legitimacy and (v) participation.
The work of these meetings was preceded
by the URB-AL Programme, created in
1995 as a community initiative intended
to establish lasting and stable
collaborative ties among European and
Latin American cities. The lessons
learned in the first two phases of the
URB-AL Programme, in which 13 themebased networks were established, led to
URB-AL III, in which 20 projects that will
have a direct impact on 74 territories in
Latin America have been approved. The
beneficiaries of the programme are, first,
governments of sub-national groups in
Latin America that are implementing
public policies in favour of social and
territorial cohesion. The citizens of the
territories either directly or indirectly
favoured by the implementation of the
projects will also benefit; as will all those
people who may benefit in the mediumterm from the consolidation or
innovation of the public cohesion
policies that either arise or are devised
while the programme is being
implemented. The aim is to set into
operation different initiatives that foster
social and territorial cohesion in Latin
America through different areas of
intervention: local governance, crossborder cooperation, migration, waste
management, public security, the
employment of women, urban
development and territorial management.
In order to help create the proper
conditions to achieve the programme’s
general and specific objective, in its third
phase the European Commission founded
the URB-AL III Orientation and
Coordination Office (OCO), which is
headed by Diputació de Barcelona in
association with the International and
Ibero-American Foundation of Public
Administration and Policies (FIIAPP), the
Municipality of San José (Costa Rica), the
Municipality of Bogotá (Colombia), the
Province of Santa Fe (Argentina), and the
region of Tuscany (Italy).
The URB-AL III Programme has
established a place for discussion
prompted by a series of core documents,
which has led to progress in the definition
of an agenda and specific goals. The
production of this document involved the
recovery of some of these texts, of which
the document ‘Local policies for social
and territorial cohesion in Latin America
in an environment of international
financial crisis’ (Godínez, 2010) is
particularly significant. This document
sketches out a series of considerations
intended for the production, at URB-AL
III, of an overview of the great problems
and priorities of a possible agenda of local
policies of social and territorial cohesion
in Latin America. It mentions that ‘in the
territorial sphere, in order to guarantee its
efficiency, public policy can be considered
to be a set of policies which are
inextricably interlaced, similar, and
immersed in inseparable processes, which
require mechanisms and instruments
which help them operate consistently and
synergistically. Another aspect is that the
political and institutional practice has
established a varyingly broad platform of
relatively specialised sectorial measures
which operate separately and are almost
always scattered. In light of this, we
would like to rescue and highlight the
great opportunity of a programme such as
URB-AL III in building different and more
efficacious methods for intervention
which contribute to the articulation of the
local public policies on social and
territorial cohesion. The atomisation of
these policies can be overcome, but that
requires the previous establishment of a
field of reflection and initiatives which is
designed to transcend the limits of
sectorial and functional specialisation in
order to obtain better results and an
optimal use of the resources.’ The
document thus stresses a need for the
territorial interrelation of sectorial
policies, and also for multi-level and
multi-sectorial coordination of public
policies. Different levels of government
must thus emphasise that the process of
public expenditure always takes place
within a spatial context, and that debate
conducted in most parliaments takes place
on an aggregate basis without mention of
17
its territorial impact and content. It
stresses that ‘proper political and
institutional management of the
relationships between the local,
intermediary, and national levels is a
crucial factor improving the productivity
of the local efforts for improvement in the
area of social and territorial cohesion.’
The priorities defined as essential in the
document are: (i) functional association of
economic growth and the productive
employment of the population; (ii)
reactivating sustainable policies for the
redistribution of income and wealth that
involve a lasting reduction in poverty
levels, accompanied by planned measures
designed to slow and reverse mechanisms
of reproduction and intergenerational
transmission of social inequality,
particularly in education and health; (iii)
reducing territorial inequalities, for which
multi-level and intersectorial articulation
and coordination of public policies are
proposed in accordance with explicit
social and territorial cohesion objectives,
which must also involve stronger tax
systems to sustain social cohesion policies
at all levels of government and a reform
of the State to open up areas for the
political and institutional reinforcement
of local government in Latin America. It
likewise points out that in the political
sphere of the proposals, the main
objective is to strengthen democratic
institutional frameworks and for society
to establish mechanisms to protect social
expenditure from economic upsets.
The problem of financing is dealt with
in the document ‘Financing policies for
social cohesion and decentralisation in
18
Latin America’ (Cetrángolo, Goldschmidt
and Jiménez, 2010), which acknowledges
the heterogeneous nature of the countries,
and states that ‘in view of such a diverse
socio-economic situation, the region is
showing progress in decentralisation
processes both in countries with a
high level of development and in
those that are less developed and have
greater social disadvantages, while
varied incentives and dynamics are
being identified for each country.
In addition to these characteristics,
analysis has been performed on the fact
that the decentralisation of functions
increases demand for resources
from sub-national governments,
which triggers fiscal tensions.
Two problems that substantially condition
the attainment of the objectives pursued
by public decentralisation policies have
been underlined. The first has to do
with the difficulties that countries in the
region experience in collecting adequate
tax revenues. The second is that uneven
territorial distribution of tax bases makes
it very difficult to fulfil the fiscal coresponsibility goals that many of the
ongoing decentralisation processes would
require.’
Another area for dialogue on social
cohesion between both regions has been
the Observatory for European UnionLatin America Decentralised Cooperation,
which, at its Fifth Conference held in
Brussels on 28 and 29 October 2010,
indicated the negative effects of the crisis
on public decentralised cooperation,
the fundaments of which are: (i)
solidarity with the have-nots must not
be abandoned; (ii) the co-responsibility
of Europe’s local governments that
have assumed a development logic has
allowed for the formation of public
decentralised cooperation policies in the
countries of Latin America, the impact of
which are clearly visible and measurable
in terms of local development; (iii)
progressive raising of public awareness,
which may be extended by making it
more visible, that public decentralised
cooperation is a ‘natural policy’ of
local government and is also at the
heart of public action as it allows for
accompaniment and reinforcement of
installed democratisation processes, like
those of decentralisation, and provides
a local response to an aspiration for
internationalisation and/or an openness
to citizenry; (iv) the chance for local
governments to make their territories
known internationally, which legitimises
public decentralised cooperation as a
contribution to local development; (v) the
reciprocal benefits to local governments
of generating exchanges and establishing
best practices through the creation
of networks with which to tackle the
challenges of territorial development
both in Latin America and in Europe,
and institutionalising their public
decentralised cooperation policy.
Another significant precedent in creating
this dialogue is the first meeting of
URBsociAL, Euro-Latin American
Dialogue on Social Cohesion and Local
Public Policy, which was held in Sitges,
near Barcelona, on 20, 21 and 22 October
2010. This meeting saw the establishment
of the Sitges 2010 URBsociAL Agenda,
which brought together the contributions
of over 350 participants from 22 countries
in Latin America and the European Union
and was attended by 50 local and regional
elected representatives. The findings of
this meeting state: ‘We are facing an
economic crisis – not just financial, but
also productive; an environmental crisis,
due to both the depletion of natural
resources and climate change; and a
societal and cultural crisis, caused by
the vast transformations which are being
experienced by the traditional models.
The size of this crisis, together with its
speed and constant transformation, has
provoked a growing unease which can
be seen in both the social fabric –in
inequality, social exclusion, intolerance,
and the loss of the sense of belonging to
a community– and in the different levels
of government, which have seen their
ability to face the new changes reduced
and which are confronting the challenge
to generate new models of intervention.
As a result, the difficulty of responding
to the current challenges of society with
traditional public policy has become
evident. In this context, we would like
to highlight the value of new proposals
for public intervention which are carried
out by sub-state institutions based on
concepts such as proximity, subsidiarity,
innovation, territorial competitiveness,
and relationship management. We have
before us a veritable testing ground of
initiatives for endogenous development
which may respond to the needs that
national public policies alone cannot
satisfy. One of the most glaring paradoxes
of the crisis is that the gap between
economic growth and development is
19
growing larger every day. In this context,
social cohesion emerges as a necessary
reference goal; it is difficult to advance
on other fronts without having a united
society, one with sufficient levels of
fairness, and which possesses a solid
and fully shared collective project. Its
particular link with local issues stems
from this.
The local aspect, however, is no longer
just a platform on which problems which
respond to global logics are unequivocally
manifested. It has also effectively shown
its qualities as a laboratory for suitable
A
to collect.’
solutions for these problems, particularly
in Latin America, despite the existence
of decentralisation processes which
have not yet been fulfilled or which are
poorly designed.’ The findings go on to
state: ‘Decentralisation is a key factor in
favouring the emergence of governmental
formulas and the provision of socially
efficient public services. This also
broadens the sphere of citizen monitoring
of public affairs. However, the complete
realisation of the promises associated
with decentralisation also requires fiscal
decentralisation, appropriate tax policies,
and the possibility for local governments
Diagram A. Latin
America: the path to
decentralisation
Centralism (1970s)
The above reflection has led to the
production of this document, the
purpose of which is to explore how fiscal
decentralisation in Latin America has
served to increase social cohesion in a
region with inequalities. Work towards
fiscal decentralisation in Latin America
became more defined in the region after
the foreign debt crisis, in which central
government lost the capacity to respond
to the challenges of development,
thus prompting a process towards
decentralisation. The processes have
nevertheless been highly inconsistent and
this has also meant unequal impact on
social cohesion.
• Bureaucratic regimes
• State-driven
• Political legitimisation
b
Crisis of centralism (1980s)
• Growing foreign debt
• Crisis of efficiency
• Debt crisis
C
Decentralisation and change of
paradigm (1990s)
• Macro-economic stability
• Democracy
• Models of powers
D
Decentralisation and equity
• Rights
• Transfers
• Social cohesion (health, education, basic services)
20
21
2. Latin America and the European Union:
two inequalities to reflect on
Over recent decades, the European Union
and Latin America have been faced with
great changes; the number of countries in
the Union gradually increased. There were
twelve members in 1990; Austria, Finland
and Sweden joined in 1995; the Czech
Republic, Cyprus, Slovakia, Slovenia,
Estonia, Hungary, Latvia, Lithuania, Malta
and Poland joined in 2004, and, lastly,
Rumania and Bulgaria joined in 2007, to
form the EU-27. In the same period, Latin
America saw significant transformations
in production, which prompted a rise in
its GDP from 81 billion dollars in 1960, to
4,180 billion dollars in 2009 (51 times),
and opened the way for growing
interaction with global society. Growth in
production capacity has placed Brazil and
Mexico among the world’s top fifteen
Chart 1. Latin America:
size of its economies,
2009
1,600
economies, in contrast with Honduras and
Paraguay, which amount to only 1% of
the Brazilian economy. These figures
contrast with those for European Union
GDP in 2009, which was four times
greater than that of Latin America and
amounted to 16,378 billion dollars.
Inequality in Europe is, however, greater
than that observed in Latin America, as
German GDP is 416 times higher than
Malta’s. Hence, dialogue between the two
regions is based on the notion of
inequality for which, while acknowledging
the differences, there is a search for
common goals such as drawing levels of
welfare closer together, both within each
region and between the two regions.
The development of Latin America has
1,573
1,200
1,000
875
800
57
37
32
29
25
21
17
14
14
El Salvador
Bolivia
Honduras
Paraguay
164 130
Panama
234
200
Costa Rica
326 307
Uruguay
400
Guatemala
600
Ecuador
Billions of current dollars
1,400
22
Peru
Chile
Colombia
Argentina
Venezuela
Source: World Bank.
Mexico
Brazil
0
23
Chart 2. The European
Union: size of its
economies, 2009
3,500
0.9
0.85
Standard deviation
2,000
1,500
0.8
0.75
0.7
Levels of income per inhabitant are
extremely unequal in the two regions.
In Latin America, there are countries
Malta
where incomes are below 2,700 dollars
per inhabitant (Haiti, Bolivia, Honduras,
Nicaragua, and Paraguay); others
where incomes are under 7,500 dollars
(Guatemala, El Salvador, Belize, Ecuador,
Peru, Jamaica, Colombia, Costa Rica,
Panama and the Dominican Republic);
and others where incomes exceed 7,500
dollars (Argentina, Brazil, Mexico,
Uruguay, Chile and Venezuela). The
situation in the European Union differs
depending on whether it is the EU-17 or
the EU-27 that is considered. Analysis
of the EU-17 yields levels of inequality
that are lower than in Latin America,
but consideration of the EU-27 reveals
greater differences and a trend towards
growing inequality since the crisis of
2009.
0.5
Source: created by the author
based on World Bank data.
Source: created by the author
based on Eurostat and World
Bank data.
2001
2002
EU (17)
2003
2004
EU (27)
2005
2006
2007
2008
2009
LA (19)
100
Chart 4. GDP per capita
in the European Union
and Latin America
90
GDP pc (thousands of dollars), 2006
Estonia
Latvia
Cyprus
Lithuania
Bulgaria
Slovenia
Slovakia
Luxembourg
Hungary
Romania
Ireland
Czech Rep.
Finland
Portugal
Greece
Denmark
Austria
Sweden
Poland
Holland
0.55
Belgium
0
Italy
0.6
Spain
500
France
0.65
United Kingdom
1,000
been accompanied by the growth in
its population, one of the world’s most
dynamic, from 218 million people in
1960 to 578 million people in 2009, in
contrast with the European Union, the
population of which remained steady
in this period and increased from 471
million to 499 million. The dynamics of
population growth become clearer upon
observation that in 2009 European Union
GDP per inhabitant amounted to 33,000
dollars, while the equivalent figure in the
Latin American region was only 7,221
dollars. The effort made does nonetheless
require acknowledgement as it had been
only 372 dollars in 1960.
24
0.95
2,500
Germany
Billions of current dollars
3,000
1
Chart 3. Sigma
Convergence: Latin
America and the
European Union
Luxembourg Capital
80
70
Brussels Capital
London
60
50
40
30
20
Severozapaden (Bulgaria)
Federal District (Mexico)
Antofagasta (Chile)
Federal District (Brazil)
10
Vaupés (Colombia)
0
0 50 100150 200250300350400
Number of sub-national governments
Source: Eurostat, statistics
institutes of countries in the
study.
European Union1
Latin America2
1. Includes European Union (27); 2. Includes Argentina, Brazil, Chile, Colombia, Mexico
25
This level of inequality is repeated within
countries (see chart 4); consideration of the
129 sub-national divisions of Argentina,
Brazil, Chile, Colombia and Mexico as a
whole shows a great difference between the
highest revenue per inhabitant, which is in
Mexico City, and the lowest, in Vichada,
Colombia; the highest is 19.7 times greater
than the lowest. In Europe, the region
with the highest income is London, and
the lowest is Severozapaden, in Bulgaria;
there is a difference of 395 times, which is
considerably greater than that observed in
Latin America.
Public budget size as a proportion of
GDP is extremely heterogeneous; in
2009, expenditure in Bolivia was three
times higher than that of Guatemala. This
national divisions of Latin America.
Inequality in Argentina and Colombia
remain high, while there have been
reductions in Brazil, Chile and Mexico. This
inequality contrasts with equality levels
among regions in the United States and
Spain, where levels are lower than those
observed in Chile and Mexico, as shown in
chart 5.
shows the regional differences with regard
to the public sector’s role in economic
restructuring.
Public revenue
Table 1. Latin America:
government revenue and
expenditure (% of GDP)
Public expenditure
2000
2005
2009
2000
2005
2009
Bolivia
33.7
31.7
44.6
37.4
34.0
44.5
Brazil
32.5
36.6
38.5
36.0
40.0
41.9
Ecuador
25.4
24.8
34.8
24.0
24.0
39.3
Paraguay
24.1
31.8
30.1
28.3
33.5
33.6
Argentina
23.2
26.9
27.8
30.4
30.5
30.0
Uruguay
26.1
28.0
27.7
29.0
28.7
29.9
Colombia
28.1
29.1
27.6
31.6
29.5
29.8
Panama
25.9
22.4
25.2
25.6
25.1
28.5
Venezuela
32.7
37.6
24.8
25.4
25.7
26.2
Mexico
18.7
21.1
23.6
19.6
21.2
25.9
0.4
Nicaragua
18.9
21.4
21.4
22.3
19.2
24.4
0.3
Chile
21.6
23.8
20.0
23.6
23.2
23.6
0.2
Peru
15.9
17.4
18.2
19.7
19.8
23.5
Honduras
16.1
17.6
17.4
18.8
17.3
20.8
El Salvador
15.8
16.2
17.0
19.2
17.7
20.1
Costa Rica
12.2
13.5
13.7
15.0
15.1
16.7
Guatemala
10.4
12.0
11.1
12.2
13.7
14.2
Latin America (17)
22.4
24.2
24.9
24.6
24.6
27.8
There are divergent trends in the evolution
of income per inhabitant in the sub-
In this context of inequality, it has
been determined that one of the
fundamental problems of Latin America,
when introducing programmes to limit
inequality, is the fiscal weakness of the
region’s governments to support more
profound changes in production.
0.8
Chart 5. Latin America:
unequal regions
Standard deviation of income per inhabitant
0.7
0.6
0.5
0.1
0.0
Argentina
Brazil
Chile
Colombia
Mexico
USA
Spain
26
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
0.61 0.63 0.62 0.64 0.64 0.65 0.65 0.66 0.66 0.64 0.63 0.58 0.58 0.62
0.66 0.61 0.66 0.67 0.59 0.57 0.55 0.56 0.56 0.55 0.55 0.54 0.51 0.51 0.51 0.50 0.49
0.46 0.45 0.44 0.44 0.43 0.42 0.42
0.55 0.52 0.51 0.55 0.55 0.55 0.55 0.55
0.67 0.67 0.51 0.51 0.50 0.49 0.47
0.25 0.24 0.24 0.24 0.25 0.24 0.24 0.24 0.24 0.25 0.25 0.25 0.25
Source: IDB, Latin American and Caribbean Macro Watch.
0.21 0.21 0.21 0.20 0.20 0.19
27
This contrasts with the situation prevailing
in the European Union; comparison of
average public expenditure of the two
regions shows that the average European
budget is nearly twice the Latin American
average. There is greater homogeneity, as
the difference between the greatest and
the smallest budget is only 40%. There is
therefore a stronger state in Europe for
going about the work of cohesion within
each country, a dimension in which there
are limitations in Latin America.
State strength in Europe together with
the efforts made to integrate the region
–economically, politically and socially–
has prompted all the members of the
Public revenue
Table 2. European Union:
government revenue and
expenditure (% of GDP)
Public expenditure
2000
2005
2009
2000
2005
2009
Germany
46.4
43.5
44.5
45.1
46.8
47.5
Austria
50.3
48.5
48.8
52.2
50.3
53.0
Belgium
49.1
49.4
48.1
49.1
52.2
54.1
Bulgaria
40.7
40.7
36.0
41.3
39.7
40.7
Cyprus
34.3
40.5
39.8
36.6
42.9
45.8
Denmark
55.8
57.8
55.6
53.7
52.8
58.4
Slovakia
39.9
35.2
33.6
52.1
38.0
41.5
Slovenia
43.0
43.8
43.1
46.7
45.3
49.0
Spain
38.1
39.4
34.7
39.1
38.4
45.8
Estonia
35.9
35.2
43.4
36.1
33.6
45.2
Finland
55.1
52.7
53.4
48.3
50.2
56.3
France
50.2
50.4
48.7
51.6
53.4
56.2
Greece
43.0
38.6
37.3
46.7
44.0
52.9
Holland
46.1
44.5
45.9
44.2
44.8
51.4
Hungary
43.7
42.3
46.1
46.8
50.2
50.5
Ireland
36.0
35.6
33.9
31.3
34.0
48.2
Italy
45.3
43.8
46.5
46.2
48.2
51.8
Latvia
34.6
35.2
34.6
37.3
35.6
44.2
Lithuania
35.9
32.8
34.5
39.1
33.3
44.0
Luxembourg
43.6
41.5
41.3
37.6
41.5
42.2
Malta
34.8
41.7
39.5
41.0
44.6
43.2
Poland
38.1
39.4
37.2
41.1
43.4
44.5
Portugal
38.2
39.9
39.7
41.1
45.8
49.8
United Kingdom
40.4
40.8
40.3
39.1
44.1
51.4
Czech Rep.
38.1
41.4
40.1
41.8
45.0
45.9
Romania
33.9
32.4
32.1
38.6
33.6
40.6
Sweden
58.7
55.8
54.2
55.1
53.9
55.2
European Union (27)
45.4
44.3
44.0
45.2
46.8
50.8
Source: Eurostat.
➜
28
➜
Union to contribute to funds geared to
establishing common standards of living,
competitiveness, environmental protection
and guaranteed citizen participation
within each member state. Budgets have
therefore been allocated to the following
items: 1a) competitiveness; 1b) cohesion; 2)
preservation and use of natural resources;
3a) freedom, security and justice; 3b)
citizenship; 4) the European Union as
a global player; 5) administration; and
6) compensation. In 2010, authorised
allocations to these funds accounted for
1% of the GDP of the EU-27. This work
enhances integration of standards in the
region and provides for greater cohesion
among the countries in the Union.
In the Latin American region no effort
similar to that of the European Union
has been made to implement a process
to establish common standards of
living. Concern for reducing inequality
has nevertheless been expressed in the
29
3. The debate on macro-balances, democracy and
social cohesion models
document ‘Time for equality: closing
gaps, opening trails,’ issued in 2010 by
the Economic Commission for Latin
America2. The effort has not however
been tied to a regional programme
that establishes goals aimed at closing
gaps among countries with a view to
increasing social cohesion; instead,
each country has set national targets
for raising social cohesion. In practice,
the focus has been to decentralise
public expenditure as a mechanism for
enhancing the development of the areas
that lag furthest behind in social welfare,
in such a way that transfers from central
government to sub-national or municipal
institutions have been made with a view
to giving local governments a broader
institutional base. The aim has therefore
been to enhance the management
capacity of local development with a view
to communities taking responsibility for
their own development. Approaches to
establishing common standards of living
have taken two divergent paths in the
European Union and Latin America. In
Europe, the process has been possible
because of the strength of the state
in each country, and combined with
a regional budget, whereas in Latin
America fiscal weakness has not allowed
for basic social foundations to be laid in
countries and the focus has been on the
decentralisation to local governments of
public expenditure.
2
30
ECLAC (2010). ‘Time for equality: closing gaps,
opening trails,’ Santiago de Chile.
One of the basic points in contemporary
economic discussion has been how the
public sector in different regions has
responded to the challenges of the global
market, how these are influenced by
democratic processes, and the nature of
the role played by social expenditure,
which allows for the maintenance of a
cohesion policy against a background
of market rivalry and democracy. The
discussion points dealt with in this section
are intended to offer a new approach
to debate on the recent financial crisis
in which the role played by democratic
institutions in recent economic policy is
emphasised.
3.1. Macro-balances in the
context of social cohesion
After the debt crisis at the end of the
twentieth century, Latin America began
restructuring its public finances in order
to reduce public sector deficit and,
meanwhile, changed the design of the
balance of payments financing model
from a system based on foreign debt to
one based on foreign investment.
Adjustment of public finance in the
1980s, after a period of expansion
between 1978 and 1981, and improvement
in the international market’s terms of
exchange for its exports and generous
international loans from the private
sector, enabled the region to implement
expansive economic policies. In turn
these prompted economic growth rates of
over 4% in 11 Latin American countries.
In most cases, however, successes were
accompanied by excessive balance of
payments deficit. 15 countries therefore
ended up with a current account deficit of
over 4% of their GDP and in 10 of these
cases, deficit was in excess of 5% of GDP.
High dependence on foreign financing of
public expenditure required adjustment
both in fiscal and in foreign accounts.
This process led to what can be referred
to as a ‘search for macro-balances’ (fiscal
and foreign), which in the context of
public finance weakness –shown in the
previous chapter– led to limitations on
expenditure on social development and
the sacrificing of social cohesion policies.
This situation gradually changed in the
1990s, when several countries began
to record trade surpluses based on the
export of raw materials, which were
reflected in fiscal surpluses. In the 1990
to 2010 period, the countries with the
greatest surpluses as a proportion of GDP
were Venezuela, Argentina, Brazil, Chile,
Ecuador and Peru. In fiscal matters, the
only country to maintain an average
surplus was Chile, although the fiscal
deficits of other countries remained
limited and did not exceed 4% in this
period.
There therefore began structural change
towards fiscal budget balancing and trade
surpluses, although higher trade and fiscal
deficits remained in those countries with
a weaker economic structure. The effort
to keep a balanced fiscal budget has been
31
Fiscal deficit as a
% of GDP
Venezuela
-5%
Chart 6. Restructuring of
public and trade deficit
from 1990 to 2010
15%
Fiscal progress in Latin America contrasts
with what happened in the European
Union during the 2008 financial crisis,
which saw a considerable deterioration
in public finance, particularly in a group
of countries where structural change in
terms of public finance and of production
structure has not been swift enough.
This is the case of Ireland, Greece, Spain,
Portugal, Poland and Slovakia. Given
that they are tied to the euro monetary
system, these countries have been forced
to discuss adjustment programmes with
the European Union authorities. The
10%
Brazil
Peru Ecuador
Bolivia
-4%
-3%
-2%
Colombia
-1%
Uruguay
Costa Rica
El Salvador
Nicaragua
Chile
1%
Mexico
-5%
2%
-10%
Guatemala
Honduras
5%
Argentina
Paraguay
-15%
Dominican Rep.
-20%
Panama
-25%
-30%
-35%
Trade deficit as a %
of GDP
Source: IADB, Latin American
and Caribbean Macro Watch.
Chart 7. European Union
(27): deterioration of the
fiscal situation
United Kingdom is an interesting case
because it has remained outside the euro
and can therefore maintain high fiscal
deficits compared to countries bounded by
monetary union.
Macro-balances have therefore become a
core item for the development of social
cohesion policies, as the markets and
prevailing institutional frameworks have
forced both regions to deal with the
adjustment processes of their weakest
members. This will most certainly mean
sacrificing the population’s standards
1
0
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
helped by growth trends in the prices of
the region’s raw materials (oil, copper,
lithium, uranium, iron, gold and silver),
caused by a rise in demand from countries
in East Asia (mainly China and India). This
has yielded substantial increases in public
revenue in countries with large mineral
reserves, without the implementation
of deliberate fiscal reforms to raise
revenue levels. In its report entitled ‘Latin
American Economic Outlook 2009,’ the
OECD3 states that ‘the extremely hard
training conditions in the crisis years
have been stimulated by strong rises in
the prices of oil, copper, natural gas and
agricultural products, while the input of
foreign capital, which ceased abruptly
in 1982, has been generous in recent
years, at least until the subprime crisis
and severe restriction of world credit.’ It
may therefore be argued that the region’s
fiscal structure is still highly dependent on
natural resources, which has been argued
by Izquierdo and Talvi in the document
‘All that glitters may not be gold: assessing
Latin America’s recent macro-economic
performance’ (IDB 2008).4
3
4 IDB (2008, April). ‘All That Glitters May Not Be
Gold: Assessing Latin America’s Recent Macroeconomic Performance.’ Research Department.
32
OECD (2008). ‘Latin American Economic Outlook
2009.’
Fiscal deficit as a percentage of GDP
-1
-2
-3
-4
-5
-6
-7
Source: Eurostat.
-8
33
5.00
Estonia
Sweden
Finland
Luxembourg
Denmark
Bulgaria
Malta
Germany
Belgium
Austria
Hungary
Italy
Cyprus
Czech Rep.
Slovenia
Netherlands
France
Romania
Latvia
Lithuania
Poland
Slovakia
Spain
Portugal
Greece
Ireland
-5.00
United Kingdom
Public deficit as a percentage of GDP
0.00
Chart 8. European Union
(27): public deficit,
featuring representation
of the cohesion process
of living and, in the case of Europe, a
deterioration in basic social welfare (see
table 3).
-10.00
3.2. Democracy as a mechanism of
protection against the impact of
macro-balances
-15.00
-20.00
-25.00
-30.00
-35.00
given in the document ‘Social cohesion
and fiscal consensus in Latin America: the
role of Parliaments’ of the part played by
the legislature, a part which was discussed
at the conference ‘Public policies in
response to the global crisis’ (San
Salvador, from 31 August to 1 September
2009), organised by the Economic
Commission for Latin America and the
Caribbean (ECLAC). Latin American
democracies have been able to develop a
political system with less centralised
presidential power, thus giving way to an
ever broader legislative system, which is
currently able to amend budget proposals
and therefore to protect social expenditure
items. Table 3 shows that there are only
four federal governments and that other
countries have one form or another of
unitary government. Three countries have
just one chamber, while the others have
Source: Eurostat.
Table 3. Latin America:
budget powers of the
legislature and of the
executive
Differences regarding macro-balances
could not have been overcome solely by
convincing financial bureaucrats and by
publicly-supported criticism from other
groups inside government. The most
significant feature of this process has been
the strengthening of democracy in Latin
America, which has led the region’s
governments to raise social expenditure.
A key factor in this debate is the account
Financial crisis in the European Union: the challenge of maintaining social cohesion
The great challenge prompted by bailouts for European Union members, as far as social cohesion is concerned, is to
maintain social expenditure levels while preventing economic collapse.
Agreement on the financial bailout of Portugal was reached at the start of May 2011. Portugal will have to implement an
austerity programme in exchange for the loan guaranteed by the European Commission, the International Monetary Fund
(IMF) and the Central European Bank (CEB). The figure for the bailout plan amounts to between 70 and 90 billion euros.
According to declarations by the Portuguese government, the agreement will not involve new cuts in basic social rights.
The Stability and Growth Pact (SGP) does, however, contemplate a reduction in the highest pensions or, in other words,
those that exceed 1,500 euros. This plan also envisages raising the minimum wage and does not foresee any civil service
redundancies. The basic objective is still to reduce the deficit to 5.9% by 2011, to 4.5% by 2012, and to 3% by 2013.
Other bailouts were awarded to Ireland and to Greece, the latter of which will require a further 20 to 30 billion euros, an
extension of repayment periods, reduced terms on the repayment of the current 110,000-million euro loan package and
a relaxation of the strict schedule for reducing the deficit, which is supposed to be reduced from 15.4% in 2009 to 2.6%
in 2014.
The situation European Union members are experiencing shows that financial fragility imposes restrictions on social
policies and this raises questions about the system for financing the deficit and its structure, and the weakness of states
with regard to maintaining their social policies.
Capacity of the
legislature to amend
executive bills
Intervention
of the
legislature Unrestricted
Cannot
Presentation determine
of a new bill expenditure
Restricted
Previous year’s
budget
Approval of
executive
budget
x
x
x
x
x
x
x
x
x
Executive
x
x
x
x
Executive
x
x
x
x
Type of
government
Structure
of the
legislature
Initiative
Executive
veto
Argentina
Federal
Bicameral
Executive
x
x
Bolivia
Unitary
Bicameral
Executive
x
Brazil
Federal
Bicameral
Executive
Chile
Unitary
Bicameral
Colombia
Unitary
Bicameral
Country
Institutional alternatives envisaged by the Constitution
or budget legislation if the legislature does
not intervene in or approve executive bills
➜
34
35
➜
Costa Rica
Unitary
Bicameral
Executive
x
x
Ecuador
Unitary
Unicameral
Executive
x
x
x
x
Guatemala
Unitary
Bicameral
Executive
x
x
x
x
Honduras
Unitary
Bicameral
Executive
x
x
Mexico
Federal
Bicameral
Executive
x
x
x
x
Panama
Unitary
Bicameral
Executive
x
x
x
x
Paraguay
Unitary
Bicameral
Executive
x
x
x
x
Peru
Unitary
Unicameral
Executive
x
x
x
x
Table 4. European
Union: governmental
organisation and
representatives of the
European Parliament
Structure of the
national legislature
European
Parliament
Members
Country
Government
Germany
Federal Parliamentary Republic
Bicameral
96
Austria
Federal Parliamentary Republic
Bicameral
19
Belgium
Federal Constitutional Monarchy
Bicameral
22
Bulgaria
Unitary Parliamentary Republic
Unicameral
18
Cyprus
Unitary Presidential Republic
Unicameral
6
Denmark
Federal Constitutional Monarchy
Unicameral
13
Slovakia
Unitary Parliamentary Republic
Unicameral
13
Slovenia
Unitary Parliamentary Republic
Bicameral
8
Dominican
Republic
Unitary
Bicameral
Executive
x
x
x
x
El Salvador
Unitary
Bicameral
Executive
x
x
x
x
Spain
Parliamentary Constitutional Monarchy
Bicameral
54
Uruguay
Unitary
Bicameral
Executive
x
x
x
x
Estonia
Unitary Parliamentary Federal Republic
Unicameral
6
Venezuela
Federal
Unicameral
Executive
x
x
x
x
Finland
Semi-presidential Federal Republic
Unicameral
13
France
Semi-presidential Republic
Bicameral
74
Greece
Unitary Parliamentary Republic
Unicameral
22
Hungary
Unitary Parliamentary Republic
Unicameral
22
Ireland
Unitary Parliamentary Republic
Bicameral
12
Italy
Parliamentary Republic
Bicameral
73
Latvia
Unitary Parliamentary Republic
Unicameral
9
Lithuania
Unitary Parliamentary Republic
Unicameral
12
Luxembourg
Parliamentary Constitutional Monarchy
Unicameral
6
Malta
Unitary Parliamentary Republic
Unicameral
6
Netherlands
Federal Constitutional Monarchy
Bicameral
26
Source: ECLAC (2009). ‘Social cohesion and fiscal consensus in Latin America: the role of Parliaments.’
two houses. Budget initiatives are issued
by the executive. What does matter, in
this case, is whether the proposal can be
vetoed by the legislature. In six countries
it can be amended unrestrictedly while in
the remainder amendment is possible,
albeit with restrictions. It may therefore
be concluded that democracy has opened
up a way for the legislature to meet social
cohesion goals.
In European Union countries, the political
system features a twin model for
36
protecting the interests of social cohesion:
on one hand there are national
parliamentary systems in which there are
thirteen countries with bicameral systems
and fourteen countries with unicameral
systems; on the other, there is the
European parliamentary system, which
ensures additional resources for cohesion
through the structural funds.
All in all, the legislative systems in the
two regions have managed to guarantee
an arrangement whereby greater
➜
37
38
11.4
4.8
14.2
13.8
12.7
12.5
12.2
12.3
12.6
Source: Economic Commission for Latin America and the Caribbean (ECLAC): Social Development Division. Database on social expenditure.
12.4
11.8
11.7
11.2
10.9
10.8
10.4
10.1
10.0
9.6
9.1
Latin America
9.1
10.0
nd
…
…
13.4
11.5
11.8
12.1
11.2
12.1
11.0
9.5
8.2
9.8
7.3
7.8
7.8
Venezuela
9.8
10.1
8.3
7.8
20.2
5.3
21.7
22.0
20.4
19.7
19.5
20.8
22.8
22.4
20.7
20.4
19.7
21.3
21.4
20.6
19.9
19.8
18.0
16.4
Uruguay
17.3
6.0
3.9
…
8.1
8.0
7.2
6.5
5.9
7.2
7.3
6.2
5.9
5.4
5.5
5.4
5.3
6.1
6.0
4.8
4.2
Dominican Rep.
3.4
7.2
3.9
7.8
8.1
8.3
9.2
9.3
9.5
9.5
7.8
7.6
7.3
7.5
7.1
6.6
6.9
6.2
5.9
4.4
4.0
Peru
3.8
8.0
6.0
8.9
13.2
9.3
8.1
7.4
7.4
10.3
6.2
9.8
9.6
8.6
8.7
8.7
8.3
7.3
6.8
6.5
2.9
Paraguay
3.6
8.7
2.5
…
9.4
9.1
7.5
8.4
7.7
8.9
9.9
9.1
8.7
10.8
8.7
8.9
8.3
8.2
9.5
9.1
6.9
Panama
8.1
8.4
5.3
12.3
11.7
11.1
11.2
10.3
10.2
8.5
7.7
8.6
9.3
6.0
6.5
6.6
6.9
7.4
6.7
6.3
7.0
Nicaragua
6.3
9.3
6.4
12.5
11.6
10.8
10.4
10.0
10.1
10.3
10.0
9.4
9.4
9.0
8.6
8.4
8.4
9.3
8.5
7.8
6.1
Mexico
7.0
8.7
nd
…
…
11.4
11.4
11.8
12.2
10.5
10.6
9.3
8.3
6.4
6.5
6.7
6.7
6.5
7.7
7.4
7.7
Honduras
7.4
6.0
3.4
7.0
7.2
7.8
7.6
7.0
7.6
7.0
7.1
6.5
6.9
6.5
5.2
4.4
4.5
4.7
5.1
4.1
3.9
Guatemala
3.6
8.6
nd
…
11.1
11.6
11.6
10.7
10.5
11.1
10.7
9.2
8.5
7.8
6.8
5.8
5.4
5.4
2.9
…
…
El Salvador
…
6.1
nd
…
…
6.4
6.3
6.2
5.6
5.4
5.9
4.0
4.4
5.3
4.9
6.2
6.2
5.9
8.9
7.2
7.9
Ecuador
6.9
16.9
3.2
19.3
17.4
16.9
17.3
17.9
18.6
18.8
18.7
17.3
15.9
16.9
17.0
16.7
15.2
16.4
15.6
14.7
16.1
Costa Rica
15.0
10.7
6.6
12.6
12.7
12.0
12.8
10.9
10.6
11.5
11.5
10.8
11.4
13.0
12.6
14.5
11.5
8.9
7.3
6.8
6.0
Colombia
5.8
13.3
2.3
14.2
12.4
12.1
12.9
13.5
14.4
15.1
15.1
14.9
15.0
13.7
12.8
12.8
11.9
12.5
12.6
12.2
11.9
Chile
12.1
20.7
8.4
26.1
25.0
23.7
22.5
22.3
22.4
21.8
21.3
21.2
21.5
21.7
19.3
19.6
20.3
18.8
17.6
14.7
17.6
Brazil
15.5
16.0
nd
…
…
16.2
17.0
17.0
17.6
17.2
17.0
15.6
16.7
15.7
15.3
13.9
12.4
…
…
20.5
4.1
…
23.2
21.1
Average
1998
1997
1996
1995
1994
1993
1992
19.1
Although all sectors or major expenditure
items have increased together with
Argentina
This upward trend in social expenditure
was similarly consolidated in the European
Union, where expenditure levels reached
28% in France, 27% in Sweden, 26% in
Germany, Austria, Belgium and Denmark,
and was only below 20% in the Czech
Republic and Ireland.
1991
In the midst of the debate on macrobalances, Latin American democracies
as a whole succeeded in raising social
expenditure from 9.1% to 14.2% of GDP
between 1990 and 2008. This increase
was greater in some regions, particularly
in countries in the South. Argentina,
Brazil and Uruguay opted to increase such
expenditure considerably; specifically, it
rose from 18% to 26% in Brazil, from 19%
to 23% in Argentina, and from 16% to
1990
3.3. Social expenditure in Latin
America: democracy with regard to
macro-balances
22% in Uruguay, and thus reached levels
similar to those prevailing in the European
Union, where the average was 22% for
the 1990-2007 period. The second group
that increased its expenditure significantly
included Costa Rica, where spending rose
from 16% to 19%; Bolivia (16%), Chile
(14%), Colombia (12.6%), Mexico (12.5%)
and Nicaragua (12.3%). In the remaining
countries, less of an effort seems to have
been made, especially in countries such as
Ecuador, Peru, Paraguay, the Dominican
Republic and Guatemala, the expenditure
of which remained under 10% of GDP.
Country
expenditure is earmarked for social
cohesion. This has given rise to a complex
system of institutions, thus reducing the
power of traditional structures that were
tending successively to reduce budgets
earmarked for social development.
…
20
…
Unicameral
…
Parliamentary Constitutional Monarchy
Bolivia
Sweden
20.1
33
19.1
Bicameral
19.2
Unitary Presidential Republic
19.7
Romania
22.2
22
21.4
Bicameral
21.8
Unitary Parliamentary Republic
20.1
Czech Republic
19.8
73
20.1
Bicameral
21.2
Constitutional Monarchy with Parliament by
Constituency
21.0
United Kingdom
20.3
22
20.0
Unicameral
19.5
Unitary Parliamentary Republic
2004
Portugal
2003
51
2002
Bicameral
2001
Unitary Parliamentary Republic
1999
Poland
2000
➜
2005
2006
2007
2008
∆ Period
Table 5. Latin America:
public social expenditure
as a percentage of gross
domestic product (GDP)
39
22.7
2.1
23.0
social expenditure, this growth has been
disparate. Social security and welfare are
the areas which have seen the greatest
growth: almost three percentage points of
GDP, slightly over half the total increase
in social public expenditure. The reason is
partly because of the increase in policies to
fight poverty although mainly because of
the Conditional Transfer Programmes.
22.9
21.9
Source: OECD database on social expenditure.
23.2
20.6
European Union
22.0
23.9
23.6
23.0
23.1
22.6
22.4
22.4
22.3
23.4
23.3
23.3
22.6
30.7
-2.93
28.4
29.4
28.4
34.7
30.2
Sweden
31.8
35.7
34.4
32.0
31.6
30.4
30.2
29.7
28.7
30.1
29.5
29.1
27.3
18.8
2.75
19.1
20.6
19.8
17.6
16.0
Czech Republic
17.3
18.1
18.1
18.2
18.0
18.8
19.0
19.5
19.8
20.7
19.7
19.5
18.8
19.4
3.79
20.4
19.4
18.6
19.9
16.8
United Kingdom
18.2
20.5
20.1
19.9
19.6
18.7
18.9
18.6
19.3
19.8
20.5
20.6
20.5
18.2
10.02
22.9
20.5
18.9
14.1
12.5
Portugal
13.4
15.5
15.7
16.5
17.1
16.9
17.3
17.7
19.2
22.2
22.4
22.9
22.5
21.8
5.09
21.0
22.5
20.7
24.9
14.9
Poland
21.2
24.4
23.2
22.6
22.8
22.2
21.6
21.8
22.2
22.5
21.7
21.3
20.0
22.3
-5.49
20.3
20.5
19.8
26.0
25.6
Netherlands
25.5
26.1
24.7
23.8
22.6
21.8
21.4
20.5
19.7
21.2
21.1
20.7
20.1
21.0
1.51
21.8
22.0
19.8
19.8
19.1
Luxembourg
19.4
20.1
19.9
20.8
20.9
21.2
20.9
20.4
20.7
23.3
23.9
23.0
20.6
22.7
4.91
25.1
24.0
23.3
20.9
20.0
Italy
20.3
21.1
20.8
19.9
22.0
22.7
22.9
23.3
23.5
24.4
24.7
25.0
24.9
15.2
1.39
15.8
15.2
13.3
16.4
14.9
Ireland
15.7
16.4
16.1
15.7
14.8
14.0
13.0
14.1
14.3
15.6
16.0
15.8
16.3
21.9
nd
23.1
21.5
20.4
...
...
Hungary
...
...
...
...
...
...
...
21.3
20.3
22.5
21.8
22.8
23.1
18.7
4.86
21.3
20.1
19.2
16.1
16.5
Greece
15.9
17.0
17.0
17.3
17.9
17.9
18.6
19.2
20.6
19.8
19.9
21.0
21.3
28.0
3.53
28.6
28.4
27.7
26.3
24.9
France
25.5
27.8
27.8
28.5
28.8
28.6
28.8
28.9
27.7
28.9
29.0
29.0
28.4
27.7
0.65
25.9
25.0
24.3
33.4
24.3
Finland
29.4
33.4
32.8
30.9
30.8
28.6
26.4
25.8
24.3
25.9
26.0
26.1
24.9
21.1
1.63
21.4
20.4
20.4
21.8
19.9
Spain
20.7
23.1
22.0
21.4
21.3
20.7
20.6
20.4
20.1
21.0
21.2
21.4
21.6
17.4
nd
16.0
17.7
17.9
...
…
Slovakia
...
...
...
18.8
18.4
18.0
18.1
18.6
17.6
17.0
16.5
16.3
15.7
27.0
0.96
26.6
26.6
25.7
26.4
25.1
Denmark
25.9
28.1
29.5
28.9
28.2
27.2
26.5
26.4
26.1
27.9
27.7
27.2
26.1
26.1
1.47
26.4
26.2
25.4
25.8
24.9
Belgium
25.7
26.9
26.3
26.3
26.8
25.7
26.0
25.9
25.8
26.3
26.5
26.5
26.3
26.5
2.66
27.0
27.3
26.7
24.8
23.8
Austria
24.1
26.2
27.0
26.6
26.7
26.8
26.6
27.0
27.0
27.9
27.7
27.4
26.4
26.1
5.11
26.1
27.4
26.6
25.6
20.1
Germany
23.7
26.3
26.3
26.8
27.4
26.7
26.6
26.6
26.7
27.7
27.1
27.2
25.2
1990 to 2007 1990 to 2007
variation
average
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1992
1990
Country
1991
1993
40
Table 6. European
Union (19): public
social expenditure as
a percentage of gross
domestic product (GDP)
Meanwhile, an ageing population
and commitments associated with
financing retirement and pensions,
plus improvements in the social
security systems of several countries in
region, including enhancement of their
non-contributory components, have
encouraged greater increase in this sector
than in others. It has been followed by
increased expenditure on education,
in line with different international
commitments assumed by countries in
the region. Although the share of this
budget item accounted for slightly over
50% of GDP, such a significant increase
in resources has nonetheless been subject
to fluctuations. Expenditure on social
security and welfare, together with
education, represents almost 80% of
the total increase in social expenditure
between the 1990-1991 and 2007-2008
periods.5
Lastly, of the sectors that can be
distinguished from among the countries
analysed as a whole, the budget item
with the lowest growth rate for almost
two decades was public health, for which
5 ECLAC (2010). Economic and social panorama
expenditure was lower even than that on
housing and other associated items (such
as water and sanitation). This coincides
with the trend in several countries
towards expansion in private sector health
services, which is consistent with the
reforms following on from the structural
adjustment of the 1980s. Another
reason, however, is because it is a highly
procyclical item that involves significant
investment and is severely affected in
periods of economic recession or low
growth (ECLAC, 2008a).
Disparate increases in items of
expenditure have prompted a
gravitational change in different sectors
towards social expenditure: social security
as a proportion rose and accounted
for nearly 43% of the region’s social
expenditure while the amount spent on
education increased slightly (27%). This
took place at the expense of expenditure
on housing (9.7%) and, above all, of
expenditure on health, which as a
proportion of total social expenditure
fell from 24.1% in 1990-1991 (slightly
under 110 dollars per inhabitant) to
20.5% in 2007-2008 (slightly over 180
dollars per person). Table 7 shows the
structure of social expenditure and reveals
considerable disparity among different
budget items and among countries. It
is therefore clear that the weakest item
is housing, while greatest support was
given to education and conditional cash
transfer programmes. It also shows that
on average 21.7% of social expenditure is
earmarked for health, for which only five
of the nineteen countries analysed spend
over the average for this budget item.
41
Country
Total
Education
Health
Social
security
Argentina
100.0
24.2
22.5
44.5
8.7
Bolivia
100.0
38.9
19.6
28.9
12.5
Brazil
100.0
20.1
19.0
54.3
6.6
Chile
100.0
26.2
23.0
48.3
2.6
Colombia
100.0
25.5
16.1
54.2
4.2
Costa Rica
100.0
30.4
28.8
30.4
10.4
Cuba
100.0
41.3
22.1
27.9
8.7
Ecuador
100.0
41.0
19.7
36.2
3.1
El Salvador
100.0
26.7
33.2
21.1
19.0
Guatemala
100.0
38.9
16.3
14.7
29.9
Honduras
100.0
67.0
30.2
2.3
0.5
Mexico
100.0
36.1
25.0
20.5
18.4
Nicaragua
100.0
44.8
30.6
0.0
24.6
Panama
100.0
45.6
24.8
13.7
15.9
Paraguay
100.0
44.1
17.8
34.8
3.1
Peru
100.0
31.9
14.7
46.6
6.9
Dominican Republic
100.0
26.0
16.6
29.3
28.1
Uruguay
100.0
18.1
18.2
56.3
7.4
Venezuela
100.0
41.0
13.3
34.0
11.6
Average
100.0
35.1
21.7
31.5
11.7
Note: 2006 was chosen as the base year as complete information was available for the countries considered.
Source: created by the author based on CEPALSTAT.
42
Housing
Table 7. Latin America:
structure of social
expenditure by budget
item (base year 2006)
3.4. The challenge of democracy:
from Conditional Transfer
Programmes to an integrated social
security system
The debate on the debt crisis yielded
Conditional Transfer Programmes (CTP)
as a mechanism to attend those most
affected and therefore to provide a
response to the intense social
deterioration being experienced. The
beneficiary population of these
programmes comprises poor and
vulnerable families with children, who
receive cash transfers on the condition
that certain practices linked with
improving human skills and educational
attainments are fulfilled. These
programmes help to protect the initial
stages of the life cycle: conditional
transfers in health and nutrition are
addressed to the neonatal stage and to
early infancy, while those assigned to
education are geared to childhood and
adolescence. Some countries, however,
also include older adults (Ecuador,
Honduras, Jamaica, Mexico, Paraguay,
Peru and the Dominican Republic), the
disabled (Argentina, Ecuador, Jamaica
and Paraguay) and poor adults of a
working age (Jamaica) in their transfer
programmes — mainly on an
unconditional basis.6
In the three five-year periods since the
implementation of the first CTPs in Brazil
6 Cecchini, S. and Martínez, R. (2011). Inclusive
social protection in Latin America: a comprehensive rights-based approach. ECLAC/GIZ.
(Bolsa Escola) and Mexico (Education,
Health and Nutrition Programme,
PROGRESA), the growth of these social
welfare programmes in Latin American
and Caribbean countries, in terms of
both coverage of the population and of
expenditure, has been constant. Around
the year 2000, the CTPs or their direct
precursors —major programmes to reduce
poverty through direct cash transfers,
such as the Bono solidario (‘Solidarity
Bond’) in Ecuador and the Programa
Asignación Familiar (‘Family Allowance
Programme’, PRAF) in Honduras—
were operating in six countries, with a
coverage of around 6% of the region’s
population and an expenditure equivalent
to 0.19% of GDP. In the following fiveyear period, these programmes expanded
very quickly and in 2005 had extended to
17 countries in the region, covering 14%
of the regional population, accounting
for an expenditure equivalent to 0.24% of
GDP. By 2008, expenditure on CTPs had
increased to 0.34%, and in 2009 to 0.40%
of GDP. This latter increase was due to
the combined effect of the expansion of
the budgets for these programmes and
to a reduction in GDP resulting from the
global economic crisis. In 2010, six of
the ten countries for which information
is available increased the CTP budget in
nominal terms, while four lowered it. As
a result of expansion, in 2010, one out of
five Latin American and Caribbean people
—113 million people— were receiving state
cash transfers through the CTPs. Of these,
around 52 million were young people and
children from 0 to 14 years old.
43
With the launch of the Conditional
Cash Transfer Programme (CCTP) in
Trinidad and Tobago in 2006 and Mi
Familia Progresa (‘My Family is Making
Progress’) in Guatemala in 2008, and
the abandonment by Nicaragua of such
programmes in 2006, there are now
18 countries that implement CTPs. In
recent years, new programmes have also
been launched and others in progress
modified; in 2009, Argentina launched
the Asignación Universal por Hijo para
Protección Social (‘Child Allowance for
Social Protection’), which absorbed the
beneficiaries of Familias por la inclusión
social, while the Plurinational State of
Bolivia created the Juana Azurduy de
Padilla mother-child allowance; in 2010,
Honduras added a transfer of 10,000
lempiras per year (the Bono 10000, the
equivalent of around 500 dollars) to the
PRAF in order to improve the education,
health and dietary conditions of destitute
households with children and teenagers.
Although growth of expenditure and
beneficiary population is a common
feature of the region’s CTPs, levels of
coverage effectively attained by each
programme vary considerably. In 2010,
Ecuador, with the Bono de Desarrollo
Humano, was the country where the
highest percentage of population was
covered by a CTP: 44%. The programmes
with the greatest number of beneficiaries
in absolute terms were: Bolsa Familia in
Brazil (52 million people, nearly half the
CTP beneficiaries in the regional zone),
Oportunidades in Mexico (27 million),
and Familias en Acción in Colombia
(12 million). In six countries (Argentina,
44
Brazil, Chile, Ecuador, Mexico and
Uruguay), the number of beneficiaries
equalled or exceeded the number of
destitute people, although it could be
argued that there is still room to extend
such programmes and to cover more
families who cannot meet their basic
needs, given that around 190 million
people were living in poverty in 2009.
Bolsa Familia and Oportunidades are
also the programmes with the largest
budgets in the region (6,200 and 3,500
million dollars respectively), although in
terms of percentage of GDP (0.47% and
0.51% respectively) they are exceeded by
Ecuador’s Bono de Desarrollo Humano
(1.17%).
The great challenge for Latin American
countries involves changing from this
system of conditional cash transfers to an
integrated social security model, geared
to a citizen-focused system of protection
throughout the life cycle.
Table 8. Latin America.
Indicators of coverage of
and public expenditure
on Conditional Transfer
Programmes, 2007 to
2010
Coverage
CTP coverage
over total
population
CTP coverage of
poor population
CTP coverage
of destitute
population
CTP/GDP
expenditure
(2009
Sources of
financing
households
persons
Argentina
Asignación
Universal
por Hijo para
protección
social
756
(2010)
3,400
(2010)
8.3
46.4
>100
0.20
Government of
Argentina
Bolivia
Bono Juancito
Pinto
nd
1,729
(2009)
17.5
32.4
50.7
0.33
Government of
Bolivia, World
Bank
Brazil
Bolsa Familia
12,583
(2010)
51,590
(2010)
26.4
84.6
>100
0.47
Government of
Brazil, World
Bank
Chile
Chile Solidario
333
(2008)
1,147
(2008)
6.8
51.7
>100
0.11
Government of
Chile
Colombia
Familias en
Acción
2,589
(2010)
11,651
(2010)
25.2
56.5
>100
0.39
Government of
Colombia, IDB,
World Bank
Costa Rica
Avancemos
nd
151
(2009)
3.3
17.4
52.2
0.39
Government
of Costa Rica,
World Bank
Ecuador
Bonos de
Desarrollo
Humano
1,179
(2010)
6,100
(2010)
44.3
>100
>100
1.17
Government of
Ecuador, IDB,
World Bank
El Salvador
Comunidades
Solidarias
Rurales
0.02
World Bank,
IDB and other
bilateral and
multilateral
sources
Country
Programme
106
(2009)
508
(2009)
8.2
17.1
38.7
➜
45
4. Territorial development in democracy:
decentralised public finance
➜
Guatemala
Mi Familia
Progresa
592
(2010)
3,254
(2010)
22.6
39.7
70,5
0,32
Government of
Guatemala
Honduras
Programas de
Asignación
Familiar
132
(2010)
661
(2010)
8.7
12.3
17.2
0.24
Government
of Honduras,
IDB and other
bilateral and
multilateral
sources
Mexico
Oportunidades
5,561
(2010)
27,247
(2010)
24.6
62.8
>100
0.51
Government of
Mexico, IDB and
World Bank
Panama
Red de
oportunidades
77
(2009)
377
(2009)
10.9
39.5
81.0
0.22
World Bank
and IDB
Paraguay
Tekopora
99
(2010)
554
(2010)
8.6
13.9
25.2
0.36
IDB
Peru
Juntos
410
(2009)
2,253
(2009)
7.6
21.2
60.6
0.14
Government of
Peru
Dominican
Republic
Solidaridad
758
(2010)
2,098
(2010)
21.2
46.3
89.0
0.51
Government of
the Dominican
Republic
Uruguay
Asignaciones
Familiares
91
(2009)
390
(2009)
11.6
84.6
>100
0.45
Government of
Uruguay
25,263
112,909
19.3
47.5
>100
0.40
Latin
America
nd: no data
Source: ECLAC (2010). Social panorama of Latin America, page 148.
46
This chapter shows how Latin American
governments have developed a complex
structure of governance in their
territories, which has helped to raise subnational and local management capacity
and encouraged a model of dynamic
decentralisation. If compared to the
European Union, however, the process
is limited and features differentiated
approaches to promoting economic
development, combined with a conflict
of financing and the appearance of subnational level debt patterns that have
exacerbated discussion on financing
rules. With a view to more in-depth
analysis at territorial level, the region’s
federated countries were selected to show
that decentralisation does not necessarily
mean greater cohesion.
4.1. Structure of territorial
governance in Latin America and
its impact on the decentralisation
of public expenditure
In recent decades –with the strengthening
of democratic systems of government–,
Latin America has altered the geography
of governance considerably, a situation
that has given rise to a structure
of sub-national governments with
greater management capacity, stronger
legislative structures and more fiscal
resources. This has arisen from a
process of decentralisation generated
by the interaction of political forces
and a new arrangement of democratic
forces in different areas of national
territory. According to Falleti (2010),7 it
is the actor whose territorial interests
predominate nationally or sub-nationally
that initially determines the type of
decentralisation, as this coalition prefers
to arrange reforms sequentially in
order to strengthen its power. National
actors therefore prefer administrative to
fiscal measures and fiscal measures to
political decentralisation. Sub-national
actors, for their part, prefer political to
fiscal measures and fiscal measures to
administrative decentralisation. This,
however, is inseparable from party
interests (in power and in opposition),
on the grounds that it leads to six types
of coalitions (national-level coalition,
sub-national coalition, ruling coalition,
opposition coalition, national ruling sub-national opposition, sub-national
ruling -national opposition), which will
give rise to differentiated sequences of
decentralisation. These sequences will
depend on the interaction of the parties
nationally and sub-nationally and also
therefore on the concerted model of
governance from which the coalitions
emerge.
The territorial political structure of
Latin America is highly diverse. The
representatives of the different regions
participate through a unicameral or
bicameral model, with nearly 3,000
members of parliament and 564 senators,
who represent 430 regions, provinces,
7 Falleti, G. T. (2010). Decentralization and Subnational Politics in Latin America. Cambridge:
Cambridge University Press.
47
➜
departments or states. In some countries
there are also local deputies who represent
the different communities that form each
of these territorial arrangements. Regions,
provinces, departments and states
are in turn divided into departments,
municipalities, cantons or provinces,
which together form a total of nearly
12,000 institutions, in some cases with
deliberating councils, town councils,
municipal councils or municipal boards.
This heterogeneous structure has also
been combined with the development
of social networks that champion local
interests –defence of natural resources,
attention to specific social groups, etc.–,
which multiply forms of representation
and which require increases in
decentralised budgets yet, in most cases,
do not bring additional revenue and thus
focuses the process of decentralisation
on demand for transfers from central
government.
This structure of governance has given
rise to a process of decentralisation of
responsibilities for expenditure from
central to intermediate and local levels of
government. As a result of this process,
sub-national governments are taking an
increasingly active part in the
management of much of the public
budget.
Table 9. Latin America:
political structure
for territorial
governance
Legislative representation
Country
Argentina
Intermediate
government:
P,D,S,R,M**
P
No.
24
Method of election of MPs to
national legislature
MPs
Method of election of senators
to the national legislature
Senators
Local govt.
P,D,S,R,M,C**
No.
Elected on the basis of
population. There are never
fewer than 5 MPs per province
257
130
3 per department
36
P
112
3 per province
72
D
512
D
9
Brazil
S
27
Candidates are voted directly;
the number of MPs varies
according to the population
513
3 per state
81
M
5,565
Council
Chile
R
15
2 MPs are elected for each of
the 60 electoral districts
120
2 senators for each of the
country’s 19 senatorial
constituencies
38
P
54
Council
161 MPs elected by territorial
constituency and 5 by
special constituency (black
communities, indigenous
communities, Colombians
resident overseas and political
minorities)
166
D
33
100 elected by national
constituency and 2 by
special constituency
102
M
1,101
*
C
81
Municipal
council
2 MPs are chosen per province
and one per every 200,000
inhabitants per province
100
*
*
C
220
Municipal
council
14
Elected on the basis of the
departmental party list system
84
*
*
M
262
Municipal
council
R
8
Elected in accordance with the
number of inhabitants in each
region; at least one is elected
158
*
*
D
22
Municipal
council
D
18
The number of MPs is
determined by proportional
representation in accordance
with departmental population
128
*
*
M
298
Municipal
corporation
500
Two per each state plus one
for the largest minority
128
M
2,456
7
Ecuador
P
22
El Salvador
D
Guatemala
Honduras
Mexico
S
32
300 are elected by means of
the system of single-candidate
electoral districts and 200
on the basis of proportional
representation in party-list
constituencies
Nicaragua
D
17
20 MPs elected nationally
and 70 in departmental
constituencies and
autonomous regions
90
70 elected in departmental
constituencies and the
remainder on a national
basis
*
M
153
Council
Panama
P
9
Elected from single-member
(26 circuits) and party lists (13
circuits)
71
*
*
D/M
75
Municipal
council
Paraguay
D
18
Elected by department
80
Elected on a national basis
45
D/M
236
Municipal
offices
Peru
D
24
Elected for each department in
accordance with population by
proportional representation
120
*
*
P
195
Municipal
council
Dominican
Republic
P
31
Elected by proportional
representation on the basis of
lists and specific candidates
throughout the country
178
One per province and one
per national district
32
M
155
Municipal
council
Uruguay
D
99
Elected by department on
the basis of proportional
representation. Minimum of
two per department
30
Elected on a national basis
and in a single electoral
constituency
30
M
89
Council
Venezuela
S
23
110 elected on a singlecandidate basis, 52 per list and
3 by indigenous constituency
165
*
*
M
335
Municipal
council
Total
430
Deliberating
council
Bolivia
Colombia
*
P
Popular
representation
68 are elected directly to
represent an electoral district;
the remainder are elected by
proportional representation
from the lists of each party in
a single district
Municipal
council
Municipal
council
Elected in accordance with
population per province
57
Costa Rica
2,947
564
Municipal
council
(cabildo)
11,921
** Unicameral National Congress.
** P: provinces; D: departments; S: states; R: regions; M: municipalities; C: cantons.
Source: ECLAC. Panorama of territorial development in Latin America and the Caribbean, Statistics Site and Chambers of the countries considered.
➜
48
49
1985-1990
1991-1995
1996-2000
2001-2007
1991-1995
2001-2007
as % of total expenditure of NFPS or
Government Expenditure
as % of GDP
1996-2000
Argentina
8.7
11.0
11.9
12.5
44.7
44.8
45.3
Bolivia
2.8
5.7
7.0
8.9
15.7
20.1
24.4
Brazil
…
…
13.9
12.9
…
36.8
32.3
Chile
2.3
2.3
3.0
2.9
7.5
9.5
8.8
Colombia
5.2
5.0
7.3
8.0
23.2
23.1
24.7
Costa Rica
0.8
0.6
0.7
0.8
2.6
2.9
3.1
Ecuador
1.8
2.2
3.8
7.6
9.1
15.7
Mexico
3.8
4.6
6.2
8.0
21.9
30.1
37.2
Paraguay
0.4
0.3
0.3
0.4
1
0.9
1.2
Peru
…
1.9
2.0
2.3
9.3
10
12.2
LA Average
…
5.0
5.4
6.0
…
18.7
20.5
Table 10. Latin America:
expenditure of sub-national
governments as a % of GDP
and as a % of public sector
expenditure
This shows how the governance
structure of the European Union has
strengthened local development,
notwithstanding substantial differences
among members (local government
expenditure is 38% in Denmark whereas
it accounts for scarcely 1% in Malta).
Significant in this band is high
expenditure in Sweden and Finland of
over 20%, compared to expenditure of
under 10% in Austria, Germany,
Slovakia, Belgium, Spain, Bulgaria,
Table 11. European
Union (27): expenditure
and revenue by level of
government (% of GDP)
1999
2000
Ireland, Portugal, Luxembourg, Greece
and Cyprus.
Comparison with the European Union
shows that the fiscal structure of Latin
America requires reform in order to
provide sub-national governments with
sufficient resources to meet expectations
arising from the impulse generated by
democracy and the formation of a
complex structure of governance
unbefitting of the low local spending.
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Expenditure by level of government
General government
46.8
45.2
46.2
46.6
47.2
46.8
46.8
46.3
45.6
46.9
50.8
50.3
Central government
25.5
24.3
25.3
25.4
25.5
25.5
25.6
25.3
25.1
25.6
27.7
28.1
State government
4.5
4.4
4.4
4.5
4.6
4.4
4.4
4.3
4.2
4.4
4.8
4.7
Local government
10.7
10.8
10.9
11.1
11.3
11.4
11.3
11.4
11.3
11.5
12.3
12.2
Social security
15.2
14.8
15
14.7
15.1
14.8
14.7
14.3
14.1
14.8
16.5
16.4
44.7
44.1
44.1
43.9
44.3
44.8
44.8
44.6
44
43.9
Source: ECLAC United Nations.
Greater decentralisation has led to debate
on which level of government is the most
effective for providing basic public
services or for building the infrastructure
required for more solid local development,
in the context of an extremely extensive
territory that covers around 20 million
km2. It should be remembered that Latin
America’s current divisions are based on a
structure built from political agreements,
cultural traditions and citizen’s
association agreements. These have
yielded a complex system for dealing with
the governance of almost 11,000 local
50
governments in which no single
mechanism has, to date, been established
to tackle social needs and there are no
strategic plans for building a basic or
interconnecting infrastructure throughout
the region.
Comparison of the level of expenditure
of Latin America with that of the
European Union shows that in Europe,
local government expenditure is
substantially higher and accounts for
17% of total GDP, almost three times the
local expenditure of Latin America.
Revenue by level of government
General government
Central government
45.8
45.4
24.3
24.3
24.2
23.2
22.9
23
23.4
23.7
23.8
23.1
22
22.7
State government
4.4
4.3
4.1
4.1
4.2
4.2
4.2
4.2
4.2
4.3
4.5
4.2
Local government
10.7
10.8
10.8
10.9
11.1
11.1
11.1
11.2
11.2
11.3
12
11.8
Social security
15.5
15.1
15.1
14.9
15.1
14.9
14.9
14.7
14.6
15.2
16.2
16.3
Source: Eurostat Database.
51
Chart 9. European Union
(27): local government
expenditure as a
proportion of GDP
Malta
Cyprus
Greece
Luxembourg
Portugal
Ireland
Bulgaria
Spain
Belgium
Slovakia
Germany
Austria
Romania
Estonia
Slovenia
Lithuania
France
Latvia
Czech Rep.
Hungary
Iceland
United Kingdom
Poland
Norway
Italy
Netherlands
Finland
Sweden
Denmark
0
5
10
15
20
25
30
35
40
Percentage of GDP
As pointed out in the OECD report ‘Latin
American Economic Outlook 2009,’ the
level of expenditure of the region’s subnational governments is lower than
OECD equivalents measured as a
percentage of GDP. There are several
reasons for this: both sub-national
government revenue and transfers from
central government are low and this
52
limits the capacity of these institutions
to change their environment.
Source: Eurostat.
4.2. The debate on financing: the
response of participants in the face
of decentralisation
For a region not highly given to the
payment of tax, debate on how to finance
a higher level of expenditure –befitting a
more complex structure of governance–
has been extremely intense. This
discussion has been taken up again by
ECLAC, which has issued a series of
documents that broadly summarise the
situation, the most recent of which by
Gómez Sabaini and Jiménez (2010),8 is
backed up by the document by Jiménez
and Podestá (2009).9 The first report
mentions that “the process of
implementing fiscal decentralisation took
place in two large ‘waves’, the first of
which gained momentum in the latter
years of the 1980s, with the view that
decentralisation would allow more
efficient allocation of public assets to a
territorially diverse sub-national citizenry
and would, in turn, improve channels of
citizen participation, of political
responsibility and of accountability. In a
second period, marked by the macro-crisis
of the mid-nineteen nineties,
decentralising reforms assumed a different
approach. Tax sharing regimes (generally
8 Gómez Sabaini, J. C. and Jiménez, J. P. (2010).
The financing of sub-national governments
in Latin America (a case analysis). Santiago
de Chile: ECLAC.
9 Jiménez, J. P. and Podestá, A. (2009). Intergovernmental relations and sub-national
finances in the face of the crisis. Santiago
de Chile: ECLAC.
unrestricted) were not prioritised as they
had been earlier but preference was rather
given to channelling federal resources to
sub-national governments for education
and health, while mechanisms of transfer
with specific earmarking were enhanced.
This process, in its different periods, was
undertaken mainly through public
expenditure (rather than revenue) despite
quite a heterogeneous situation. Argentina
and Brazil (federal countries) have
generally attained higher degrees of subnational fiscal decentralisation, in terms
of both expenditure and of revenue,
followed by Colombia and Bolivia
(countries with a unitary system)”. This
reflection shows how the financing of
decentralisation has been adapted and
how the participants therein have sought
to obtain income from raw materials,
rather than from increasing sub-national
tax collection, as is the case of Bolivia,
Colombia and Mexico. In Bolivia, strong
growth in the primary balance is basically
explicable by the introduction of the
direct tax on hydrocarbons and
hydrocarbon derivates (IDH), collection of
which has yielded an average 5.7 points
of GDP in the last three years, of which
over 90% is transferred to intermediate
and local governments. In Colombia,
meanwhile, improved performance in
regional and local finance is the result of
an increase in transfers of national origin
and of the adoption of a series of
constitutionally and legally ordained
fiscal regulations. The first measures were
addressed to administrative control of
territorial debt introduced by Law 358 of
1997. Subsequently, these controls were
reinforced and greater market mechanisms
53
were adopted. Law 617 of the year 2000,
in particular, prompted the restructuring
of the internal debt of territorial
governments with guarantees endorsed by
central government, while Law 633 of
2001 complemented restructuring with a
programme of prepayment of bank debt,
financed with resources from the oil
royalties that sub-national governments
had saved in the Oil Stabilisation and
Saving Fund (FAEP). In Mexico, most
resources come from shares in federal
revenue and economic incentives, which
in 2010 accounted for 7.2% of GDP. This
revenue structure includes resources from
the Hydrocarbon Extraction Fund and the
tax on trading with these resources.
Brazil
This weakness is the result of the way in
which taxation has been structured. Table
13 offers a summary of tax allocation
Transfers
Other revenue
Total
11.9
7.9
1.6
21.4
Argentina
5.6
7.6
0.7
13.9
Bolivia
3.9
7.4
0.5
11.8
Colombia
3.1
4.8
0.1
8.0
Chile
1.8
1.0
0.0
2.8
Mexico
1.5
9.1
0.8
11.4
Ecuador
1.1
2.5
0.0
3.6
Costa Rica
0.9
0.0
0.0
0.9
Peru
0.8
4.8
0.4
6.0
Source: ECLAC from official data.
54
Own resources
In Latin America as a whole, Brazil
is the country in which sub-national
governments obtain most of their funds
from resources they generate themselves.
The situation is similar in Chile, albeit
on a different scale, as they represent
1.8% of GDP. The remaining countries
obtain their funds from transfers from
central government. A notable case in
point is Mexico, where 80% of resources
come from this source. Sub-national
governments therefore lack a solid
resource base.
Table 12. Structure of
the total revenue of subnational governments,
2008, as a % of total GDP
at different levels of government and
shows that much of the tax collected
is concentrated at national level. This
explains the weak revenues of local
authorities, which depend for their
development on transfers agreed with the
national authorities and on agreements
they reach with local investors. Such
distribution reveals both the weakness of
the revenue sources and a lack of local
negotiation with the central authorities
with a view to generating their own
resources. This appears to originate from
the lack of an integrated model of the role
that local development should play in the
process of national development and from
what could be described as the paradox
of local development: i.e. it wishes to
play a leading role without assuming the
risk of the conflicts involved in collecting
tax directly, while preferring non-local
authorities to assume that responsibility
and, once collected, returning the revenue
to them.
This structure whereby fiscal powers
are allocated by government level
yields a revenue model in which central
governments collect 91% of revenue and
sub-national governments collect only
9%. The exception is Brazil, where subnational collection accounts for 30% of
the total. Chart 10 indicates the proportion
of tax revenue by government level for
2008 and shows that the countries in
which a greater share was collected at
sub-national level were Brazil, Argentina,
Colombia and Chile.
As a result of the structural weakness of
sub-national public finances, in the 1990s
financing was through debt and this
increased fiscal fragility. This situation
was, however, rectified last decade, and
deficits became surpluses, both in terms
of level and of duration. Positive changes
in sub-national public resources are not
generally the result of greater efforts
to bring in taxes at intermediate and
local level, but rather the result of the
growing importance given to transfers
from national governments. An indicator
of lower public sector vulnerability in
the face of this global economic crisis, in
comparison with previous crises, is the
level of debt, which shows that debt over
GDP ratios fell considerably from 2002
to 2007. Different factors contributed to
better fiscal results and to a reduction
in the debt to GDP ratio of these levels
of government. In Argentina, a rise in
self-generated revenue and, mainly, in
transfers, plus changes in relative prices,
led to improved fiscal indicators. This
also occurred against a background of
agreements between central government
and sub-national governments. National
government also reached bilateral
agreements known as ‘Orderly Financing
Programs’ with some provinces whereby
the provinces were granted monthly
financing to deal with negotiated
financial deficits and debt redemption
services.
These agreements were based on three
core areas: reducing the level of fiscal
deficit of the provinces through policies
to rationalise public expenditure and
increase tax revenue, not increasing
provincial public debt, and implementing
the reforms pending in each signatory
55
Chart 10. Latin America:
tax revenue by level of
government, 2008 (as a
% of GDP)
Table 13. Latin America:
allocation of fiscal
powers by level of
government
Mexico
Ecuador
Costa Rica
Peru
Colombia
Argentina
Brazil
Mexico
Bolivia
Chile
Colombia
Peru
N
N
N
N
N
N
N
S
S
N
N
N
N
Chile
Company tax
Bolivia
Income tax
Argentina
Gross assets of
companies and
individuals
N
N
N
Transfer N
N
N
N
Sales (VAT)
N
N
N
N
N
N
N
Other indirect
taxation
Energy and
fuel N
Industrial
production
(IPI) N
Income from
natural resources
Royalties: S
Tax on motor
vehicles
Property: S
Property: S
Property and
use: S
Tax on real
property
Property: S
Land: N
Inheritance tax: S
Transfer: M
Transfer: S
Property: M
Company tax
Fuel N
Tax on gross
Tax on gross
income: N
income: N
Consumption tax
Consumption tax
Royalties: N
On services: M
Industry and
trade: M
In Brazil, improvements in the primary
56
0
Royalties: N; S; M
Shared
royalties
Registration: S
Property
Use: M
Registration and
use: S
Tax on local
companies
(patents)
Tax on local
companies
(patents)
Tax on local
companies
(patents)
balances of states and municipalities was
the result of different factors such as
restrictions on their budgets established
5
Brazil
Petrol: N
Alcohol and
tobacco: S
Surcharge on
petrol
N: central government; S: state government; M: municipal government
Source: created by the author based on Volume I of the Inter-American Development Bank. The local alternative. Decentralization and economic development, 2010.
jurisdiction.
Brazil
Argentina
10
15
Bolivia
Chile
20
Colombia
25
Peru
30
Costa Rica Ecuador
35
Mexico
Central
government
23.9
26.3
20.8
18.5
15.5
16.7
15.6
15.8
9.7
Sub-national
government
10.1
4.4
0.9
1.1
2.5
0.2
0.6
0.4
0.6
Source: World Bank.
in bilateral agreements with federal
government, the provisions of the Fiscal
Responsibility Act and greater tax
revenues. The process of renegotiation
and assumption of debt by the Treasury
started after the creation of the real,
through fiscal adjustment programmes
with each state and municipality. These
agreements incorporated performance
targets and prohibited further tax
collection until the debt was reduced to
a maximum national limit. Payment by
creditors of a monthly rate of the debt
service as a fixed proportion of current
revenue was also established; the main
condition was that they must offer firm
guarantees such as automatic blockage
and withholding of constitutional
transfers and self-generated revenue.
Upon completion of this series of debt
refinancing programmes, the Fiscal
Responsibility Act was issued and this
prohibited the award of new loans by
the Union and the subscription to new
agreements over and above what had
already been renegotiated. To sum up,
both the existence of overall sub-national
surpluses in 8 out of 10 Latin America
countries for which information from
2007 is available, and the lower debts
figures of these governments, indicate that
they are better positioned to tackle this
57
crisis than they were in previous years.
This has partly been helped by a series of
reforms in macro-fiscal mechanisms, in
the tax system and in intergovernmental
transfers.
4.3. An introduction to
sub-national public finances
in the Latin American region
Given the vastness of the Latin American
region, the diversity of agreements
originating from democracy and a
lack of consistent information, this
section analyses the federalist models of
Argentina, Brazil and Mexico and the
unitary state of Chile. It then describes
the organisation of public finances at
different levels of government with a
view, thereafter, to analysing how this
fiscal structure deals with the provision of
basic services and, therefore, to cohesive
local development. As far as expenditure
is concerned, the three federalist countries
show a clear trend towards concentration.
In Argentina, although partnership
agreements have allowed for a broader
distribution of powers, federal government
continues to control a greater share of
public spending as a proportion of GDP
(14.6% in 1994 and 15.1% in 2006), while
the share of the provinces in spending
stands at around 10% (10.2% in 1994
and 11.7% in 2006) and has not changed
significantly, at least, in the last twelve
years; for local governments, the situation
is even more unstable: their collection
58
In Brazil, efforts to strengthen federalism,
with the promulgation of the Constitution
of 1988, gave states greater independence
to exert direct control over high-incidence
tax (the Goods and Services Tax that
unified five federal taxes for example).
Transfers of this tax to the municipalities
meanwhile increased by 25%. As a result,
federal government control over spending
fell (from 30.4% of GDP in 1994 to 21.1%
in 2006); the effects on a state level were
not so noticeable because of the amount
of resources transferred from states to
the municipalities. Local governments
meanwhile increased their control over
spending and, in the same period (19942005), their expenditure by nearly two
points of GDP (from 5.7 to 7.5%).
In Mexico there were no substantial
changes in the expenditure levels
exerted by federal, state and municipal
government. In the 1994-2010 period,
average public sector expenditure
remained at around 22.8% of GDP
for federal governments, 8.3% for
state governments and 1.6% for local
governments. Perhaps the only fact
worthy of note is the change experienced
by the Federal District, which went from
reporting to the federal government
to become an Autonomous Institution
(albeit not a state) with a directly elected
government (the Federal District is the
institution with the largest share in the
country’s economy –amounting to 18% of
4.4. Territorial concentration of
sub-national public finances in the
Latin American region
national GDP- and a public expenditure
equivalent to 1% of the country’s GDP).
levels are low, they are dependant on
federal and provincial governments and
their expenditure level scarcely amounts
to 3% of GDP.
Analysis of the territorial distribution of
state or provincial expenditure in these
federated countries shows concentration
in large urban areas. In Argentina, the
province and city of Buenos Aires account
for 38% of total spending, followed
Table 14. Public
expenditure by level of
government in Argentina,
Brazil and Mexico, 19942009
Percentages of GDP
Federal or national government
Argentina
Brazil
Mexico
1994
14.6
30.4
23.6
1995
14.7
21.9
1996
14.3
1997
State or provincial government
Argentina
Municipal or local government
Brazil
Mexico
Argentina
Brazil
Mexico
10.2
13.7
7.4
2.8
5.7
1.3
24.6
10.4
12.0
7.0
2.6
5.9
1.1
21.2
23.9
9.9
12.1
6.7
2.5
5.7
1.1
13.8
27.3
24.3
9.9
17.0
7.4
2.5
5.5
1.1
1998
14.0
18.1
22.1
10.5
11.9
8.2
2.7
6.1
1.3
1999
15.6
17.8
22.7
11.5
11.0
8.4
2.9
5.7
1.5
2000
15.7
18.2
23.1
11.2
11.4
8.2
2.8
5.9
1.6
2001
17.1
19.0
24.8
12.2
12.0
8.8
3.0
6.2
1.7
2002
13.7
19.4
23.8
9.7
12.3
9.0
2.5
6.7
2.0
2003
14.3
18.6
22.2
9.7
11.1
8.4
2.3
7.1
1.8
2004
13.2
19.0
21.2
10.5
11.1
8.1
2.4
7.0
1.7
2005
15.0
20.2
19.6
11.4
11.5
8.4
2.7
7.1
1.8
➜
59
➜2006
15.1
21.1
19.2
11.7
12.0
8.7
2.9
7.5
1.9
2007
13.9
nd
21.0
11.5
nd
8.8
nd
nd
1.8
2008
14.9
nd
23.4
12.2
nd
9.6
nd
nd
2.1
2009
nd
nd
25.9
13.2
nd
9.5
nd
nd
nd
➜
Source: for Argentina, National Budget Bureau of the Internal Revenue Service of the Ministry of Economy (MECON); for Brazil, Secretariat
of the National Treasury (STN), the Brazilian Institute of Geography and Statistics (IBGE) and the Central Bank of Brazil (Bacen); for Mexico,
information from the National Institute of Statistics and Geography (INEGI).
by Córdoba, Mendoza and Santa Fe,
which account for a joint expenditure of
almost 20% of the total. Decentralised
expenditure therefore seems to have
encouraged the formation of both mega-
cities and a group of intermediate cities
where growth is fastest.
In Brazil, three institutions account for
48% of territorial expenditure: São Paulo,
Table 15. Argentina:
structure of the total
expenditure of the
provinces, yearly averages
from 1996-2006
Percentages of GDP
Current expenditure
Consumption
expenditure
1.0
3.5
Catamarca
Capital expenditure
Current transfers
to the public sector
Current transfers
to the private and
external sector
Income from
property and
financial
investment
0.8
0.0
0.1
3.2
2.1
0.6
0.2
0.2
0.1
Córdoba
0.9
0.8
Corrientes
0.3
Chaco
Chubut
0.4
0.3
0.1
0.0
0.0
0.1
0.0
0.0
Formosa
0.2
0.2
0.1
0.0
0.0
0.0
0.0
0.0
0.0
Jujuy
0.2
0.2
0.1
0.0
0.0
0.0
0.0
0.0
0.0
La Pampa
0.2
0.1
0.1
0.0
0.0
0.0
0.0
0.0
0.0
La Rioja
0.2
0.2
0.1
0.0
0.0
0.0
0.0
0.0
0.0
Mendoza
0.5
0.4
0.3
0.1
0.0
0.1
0.1
0.0
0.0
Misiones
0.3
0.2
0.2
0.0
0.0
0.0
0.1
0.1
0.0
Neuquén
0.4
0.3
0.2
0.1
0.0
0.0
0.1
0.0
0.0
Río Negro
0.3
0.2
0.2
0.0
0.0
0.0
0.0
0.0
0.0
Salta
0.3
0.3
0.2
0.0
0.0
0.0
0.0
0.0
0.0
San Juan
0.2
0.2
0.1
0.0
0.0
0.0
0.0
0.0
0.0
San Luis
0.2
0.1
0.1
0.0
0.0
0.0
0.1
0.0
0.0
Santa Cruz
0.3
0.2
0.1
0.1
0.0
0.0
0.1
0.1
0.0
Santa Fe
0.9
0.8
0.5
0.1
0.1
0.0
0.1
0.1
0.0
Santiago del
Estero
0.3
0.2
0.2
0.0
0.0
0.0
0.0
0.0
0.0
Total
Capital
transfer
0.0
0.1
0.1
0.0
Tucumán
0.4
0.3
0.2
0.1
0.0
0.0
0.1
0.0
0.0
0.4
0.2
0.3
0.2
0.1
Tierra del
Fuego
0.1
0.1
0.1
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
12.1
10.5
7.2
1.8
1.1
0.8
1.6
1.1
0.2
0.5
0.2
0.1
0.1
0.1
0.1
0.0
0.2
0.2
0.0
0.0
0.0
0.0
0.0
0.0
0.4
0.3
0.2
0.1
0.0
0.0
0.1
0.0
0.0
0.3
0.2
0.2
0.0
0.0
0.0
0.1
0.0
0.0
Total
Buenos Aires
(capital)
1.1
Buenos Aires
National total
Source: created by the author based on MECON data, National Office of Tax Coordination with the Provinces.
➜
60
0.4
Real
direct
investment
Total
expenditure
Province
Entre Ríos
Rio de Janeiro and Minas Gerais, followed
by a group of intermediate institutions
such as Bahia, Paraná and Rio Grande
do Sul, which account for 17%. There
then come three institutions, Brasilia,
Pernambuco and Santa Catarina, which
61
account for 10% of expenditure. The
development of mega-cities in Brazil has
been combined with the growth of an
intermediate group, which has led to more
balanced development and caters for a
stronger governance structure, and has
given rise to a more decentralised model
of development.
Mexico is the least territorially
concentrated of the three federated
countries, as the expenditure of the
Federal District and its metropolitan
area with the State of Mexico only
accounts for 22% of the total expenditure
of federative institutions, which
indicates a process of greater relative
decentralisation. This group is followed by
a nucleus of three federative institutions
that account for 17% of expenditure:
Jalisco, Nuevo León and Veracruz. There
then comes a group of ten federative
➜
Table 16. Brazil: structure
of state expenditure
by large groups, yearly
averages from 1996-2006
Mato Grosso
do Sul
0.2
0.2
0.1
0.1
0.0
0.0
0.0
0.0
0.0
Mato Grosso
0.2
0.2
0.1
0.1
0.0
0.0
0.0
0.0
0.0
Pará
0.3
0.2
0.1
0.1
0.0
0.0
0.0
0.0
0.0
Paraíba
0.2
0.1
0.1
0.0
0.0
0.0
0.0
0.0
0.0
Pernambuco
0.4
0.3
0.2
0.1
0.0
0.1
0.0
0.0
0.0
Piauí
0.1
0.1
0.1
0.0
0.0
0.0
0.0
0.0
0.0
Paraná
0.7
0.5
0.3
0.1
0.0
0.2
0.1
0.0
0.0
Rio de Janeiro
1.4
1.2
0.6
0.5
0.1
0.2
0.1
0.0
0.1
Rio Grande do
Norte
0.2
0.1
0.1
0.0
0.0
0.0
0.0
0.0
0.0
Rondônia
0.1
0.1
0.1
0.0
0.0
0.0
0.0
0.0
0.0
Roraima
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
Rio Grande do Sul
0.8
0.7
0.5
0.2
0.1
0.2
0.1
0.0
0.1
Santa Catarina
0.4
0.3
0.2
0.1
0.0
0.1
0.0
0.0
0.0
Sergipe
0.1
0.1
0.1
0.0
0.0
0.0
0.0
0.0
0.0
São Paulo
3.6
3.2
1.7
1.2
0.3
0.9
0.4
0.0
0.5
Tocantins
0.1
0.1
0.0
0.0
0.0
0.0
0.0
0.0
0.0
12.9
10.8
6.0
3.6
1.1
2.5
1.4
0.1
1.0
Percentages of GDP
Total current expenditure
Total
expenditure
Total
Acre
0.1
0.1
0.0
Alagoas
0.1
0.1
Amazonas
0.2
Amapá
Institution
Administrative Expenditure on
expenses
federal transfers
Capital expenditure
Expenditure
on physical
Expenditure
on debt
and financial Expenditure on
investments federal transfers redemption
Other
Total
0.0
0.0
0.0
0.0
0.0
0.0
0.1
0.0
0.0
0.0
0.0
0.0
0.0
0.2
0.1
0.1
0.0
0.0
0.0
0.0
0.0
0.1
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
Bahia
0.6
0.5
0.3
0.2
0.0
0.1
0.1
0.0
0.0
Ceará
0.4
0.3
0.1
0.1
0.0
0.1
0.0
0.0
0.0
Federal District
0.4
0.4
0.3
0.1
0.0
0.0
0.0
0.0
0.0
Espírito Santo
0.3
0.2
0.1
0.1
0.0
0.1
0.1
0.0
0.0
Goiás
0.3
0.3
0.2
0.1
0.0
0.1
0.0
0.0
0.0
Maranhão
0.2
0.2
0.1
0.0
0.0
0.0
0.0
0.0
0.0
Minas Gerais
1.2
1.0
0.5
0.3
0.2
0.2
0.1
0.0
0.1
National total
Source: created by the author based on data from the Ministry of Finance, Secretariat of the National Treasury, General Coordination of Relations and Financial Analyses of States and
Municipalities (COREM).
➜
62
institutions with an average expenditure
of 3-4% of the total that accounts for
31% of expenditure and includes highly
disparate states such as Baja California,
Chiapas, Chihuahua, Guanajuato,
Michoacán, Oaxaca, Puebla, Tamaulipas
and Tabasco. The decentralisation process
in Mexico therefore seems more equitable
than those that have taken place in other
countries in the region.
63
The three cases show that the level of
expenditure of federative institutions,
albeit only 8% to 12% of GDP, has been
extremely significant for some provinces
or other federative institutions, and has
prompted substantial changes in regional
development. Such is the case of
backward regions like Paraná in Brazil or
Table 17. Mexico:
structure of the gross
total expenditure of
federative institutions,
yearly averages from
1996-2006
Percentages of GDP
States
Gross total
expenditure
Administrative
expenditure
➜
Chiapas in Mexico. In these examples, the
impact for cohesion may be greater than
that observed in a simple outline of
budget distribution in each federative
institution. For this decentralisation
process to have the desired results requires
a model of supra-regional planning with
defined outlines for the implementation of
Expenditure on
public works,
economic
development and
social action
Federalised
expenditure
Public debt
and financial
investment
Othe
expenditures
Hidalgo
0.17
0.02
0.02
0.13
0.00
0.00
Jalisco
0.43
0.18
0.02
0.19
0.01
0.02
State of Mexico
0.83
0.29
0.06
0.39
0.08
0.02
Michoacán
0.27
0.16
0.03
0.08
0.00
0.00
Morelos
0.12
0.02
0.01
0.09
0.00
0.00
Nayarit
0.10
0.01
0.01
0.07
0.00
0.01
Nuevo León
0.43
0.14
0.03
0.16
0.02
0.08
Oaxaca
0.29
0.04
0.02
0.20
0.02
0.01
Puebla
0.33
0.16
0.02
0.13
0.01
0.02
Aguascalientes
0.08
0.01
0.01
0.06
0.00
0.00
Querétaro
0.13
0.02
0.02
0.08
0.00
0.00
Baja California
0.29
0.07
0.01
0.12
0.00
0.09
Quintana Roo
0.10
0.01
0.01
0.06
0.00
0.01
Baja California Sur
0.06
0.01
0.00
0.04
0.00
0.00
San Luis Potosí
0.17
0.03
0.01
0.13
0.01
0.00
Campeche
0.11
0.04
0.01
0.04
0.00
0.02
Sinaloa
0.19
0.04
0.02
0.13
0.01
0.00
Coahuila
0.20
0.11
0.02
0.05
0.00
0.00
Sonora
0.21
0.05
0.02
0.13
0.01
0.00
Colima
0.06
0.01
0.00
0.04
0.00
0.00
Tabasco
0.26
0.10
0.02
0.12
0.01
0.01
Chiapas
0.33
0.12
0.03
0.16
0.02
0.00
Tamaulipas
0.24
0.04
0.04
0.15
0.00
0.01
Chihuahua
0.27
0.07
0.04
0.14
0.01
0.01
Tlaxcala
0.08
0.02
0.00
0.05
0.00
0.01
Federal District*
1.00
0.58
0.10
0.23
0.06
0.03
Veracruz
0.51
0.25
0.05
0.18
0.01
0.02
Durango
0.13
0.03
0.01
0.09
0.00
0.00
Yucatán
0.10
0.04
0.01
0.05
0.00
0.00
Guanajuato
0.27
0.09
0.02
0.16
0.00
0.01
Zacatecas
0.11
0.01
0.01
0.09
0.00
0.00
Guerrero
0.26
0.04
0.02
0.17
0.01
0.02
National total
8.11
2.82
0.69
3.87
0.33
0.40
Source: created by the author based on INEGI, State and Municipal Public Finances of Mexico, assorted editions.
➜
64
65
5. The debate on transfers: the path
of concerted decentralisation in Latin America
change (Ochs, 1974).10 Otherwise, subnational expenditure may get lost among
bureaucratic problems that reduce the
impact of decentralisation. Mexico, it is
worth mentioning, is currently debating a
change in the planning law in order to
give greater substance to planning tasks
and to guarantee the formation of social
networks that foster citizen participation
(Center for Social and Public Opinion
Studies, CESOP, 2007).11 This initial
introduction to the territorial distribution
of sub-national public expenditure raises
some points about the processes of
decentralisation that are worth reflecting
upon:
/ Latin American mega-cities continue to
absorb a great deal of public
decentralisation effort, a situation that
must be redressed in order to consolidate
the emergence of intermediate urban
centres that benefit highly scattered
regions.
/ The emergence of intermediate cities
shows that gradual progress is being made
towards a more complex model of
territorial development. These experiences
should therefore be considered as part of
this model.
/ Decentralisation processes should favour
relatively economically backward regions
in order to prompt dynamics of change
10 Ochs, Jack (1974). Public Finance. Harper and Row
Publishers.
11 Navarro Arredondo, A. and Meixuerio Nájera,
G. (2007). Federalism and regional planning in
Mexico. CESOP.
66
for balancing territorial development.
/ Decentralisation is not necessarily
coupled with cohesion; a process of
decentralisation focused on social
cohesion must therefore be accompanied
with the design of rules that guarantee an
approach that integrates regions. The
following section features analysis of the
regulations that have been established to
transfer resources to different levels of
government, with a view to strengthening
state and municipal management capacity.
The previous chapter deals with the
significant role that transfers have played
in the governance model. This chapter
resumes the debate, describes the rules
that have been followed to earmark them,
and uses the cases of Argentina, Brazil,
Chile and Mexico to show how the model
that has been chosen is a discretionary
one, if compared to the European Union,
where the establishment of structural and
cohesion funds has created an
institutional framework for managing
transfers.
5.1. The role of transfers in the
debate on decentralisation12
Musgrave (1959) considered that fiscal
decentralisation involves the distribution
of powers over public revenue and
expenditure among levels of government
and/or territorial administrations in order
to achieve an appropriate distribution
of decision-making power, a basis
for discussion. The author posits that
the State has three basic functions:
a) stabilisation (fiscal and monetary
policy); b) distribution (redistribution of
income); and c) allocation (production of
12 This section involves a resumption of the debate of the working paper of the Undersecretariat
for Regional and Administrative Development of
the Ministry of the Interior of the Government of
Chile (2009), entitled ‘Decentralisation in Latin
America: a comparative analysis of the cases of
Colombia, Bolivia, Peru, Brazil and Argentina.’
public assets and services). Oates (1972)
complemented Musgrave’s notions on
basic functions by proposing they should
be exercised territorially, leaving the
two former functions as the preferential
exercise of central government and
‘allocation’ as a function shared among
levels of government with a view to
reducing the impact of market failures
(lack of information, economies of
scale, externalities). Varied theoretical
arguments therefore exist either in favour
or against fiscal decentralisation. There
is also no agreement as to the empirical
effects of fiscal decentralisation on
the national or sub-national economy
above and beyond agreement that fiscal
decentralisation increases the power of
sub-national governments.
The approach known as fiscal federalism
or, in other words, the series of fiscal
relations established by the different
areas of government in the federal
system, offers the option of combining
centralisation and decentralisation. Its
main task is therefore to determine the
optimum level of fiscal decentralisation
on the basis of appropriate assignation of
powers at different levels of government.
There is an assumption that allocation of
public resources is much more efficient
in a decentralised model (appropriate
distribution of fiscal powers), as the
benefits are not applied universally to
the population. Given that individual
preferences are always different,
the more homogeneous and smaller
communities are, then the more efficient
the provision of services are too. Sub-
67
national governments would have much
more accurate information about the
public’s real needs and preferences,
which is the reason for pursuing greater
fiscal autonomy and, therefore, deciding
expenditure and revenue (taxation) on
a sub-national scale. When, moreover,
public property is provided locally and
financed with national taxes, it is harder
for people to associate the benefits with
the payment of tax they have made. It is
likewise assumed that decentralised fiscal
structure can increase tax revenue. People
should be more able to relate the benefits
obtained from the associated taxes, which
would create greater willingness to pay
them and thus reduce evasion. Citizens
would then, in turn, be more able to put
pressure on local (rather than national)
civil servants to do their job efficiently,
as the payment of taxes would be more
directly associated with the provision of
services (e.g. health, education, drinking
water, sanitation, etc.). Collection would
also be more efficient for reasons of
proximity and supervision capacity.
Put simply, it is argued in the literature
on fiscal federalism that government
works better if it is closer to the people
and, in turn, that greater levels of fiscal
decentralisation do not necessarily
mean macro-economic instability. The
underlying notion is the principle of fiscal
equivalence or, in other words, the idea
that taxes must be associated with the
costs of and benefits received from public
property.
Transfers made from national
government in most cases account for
the principal source of revenue of sub-
68
national governments. These may or
may not be conditional, depending on
the national public policy objectives.
They are conditional if the funds
transferred are earmarked for a specific
purpose (generally sectorial); they are
not, however, conditional if they are
unrestricted and for use in accordance
with the priorities of sub-national
governments. As a general rule, subnational governments tend to prefer
unconditional transfers with which they
can make use of resources according to
their own priorities. This, in turn, gives
rise to fewer incentives for sub-national
governments to generate own resources.
Insofar as regional production in each
country is very heterogeneous, capacity
to generate own revenue via taxation is
therefore very much affected.
The inexistence of fiscal correspondence
between expenditure and self-generated
revenue leads to dependence on the
system of intergovernmental transfers.
Transfers may have different purposes,
which include covering vertical imbalance
between central and sub-national
government, given that for sub-national
governments expenditure tends to be
higher than revenue; covering horizontal
imbalance, improving redistribution
among sub-national governments and
thus guaranteeing a minimum of public
assets for all or compensating territorial
disparities; financing merit goods such
as health, education or others; correcting
negative externalities, and compensating
those that may be affected. However,
the greater the horizontal imbalance,
the greater too the vertical imbalance
and, the more centralised the tax system,
the higher the dependence on transfers
for covering the financing sub-national
government deficit.
In a non-optimal distribution of functions,
when full fiscal correspondence is
impossible, intergovernmental transfers
become essential. Two dilemmas have
therefore arisen: the degree of subnational government autonomy in the
face of a search for sectorial policy
objectives, and the question of whether
to refund or to redistribute. It could be
argued that in Latin America the latter
has prevailed, as shown in the following
section.
5.2. Patterns of transfers in Latin
America
The democratisation process in Latin
America brought with it electoral reforms
that allowed for the democratic election of
local and intermediate authorities, which
has led to pressure for greater resources
to enable local and regional authorities
to address the wishes of their electorates,
thus giving rise to new grounds for
demands for fiscal empowerment. The
result has been a gradual yet clear trend
towards the decentralisation of public
expenditure in Latin America from 1985
to the present day. This is based on the
underlying notion that decentralisation
should allow more efficient allocation
of public assets to a territorially-diverse
sub-national citizenry, which in turn
would prompt improvement in channels
of citizen participation and political
responsibility. Diagram 1 shows the route
decentralisation may follow. In most
cases, transfers from central government
were extremely significant: in Brazil,
they accounted for 36.9% of the revenue
of federative institutions; in Argentina,
54.7% of provincial revenue; in Bolivia,
62.7%; in Colombia, 60%; in Chile, 36%;
in Mexico and Peru, 80%; in Ecuador,
89%; while in Costa Rica there were no
transfers. Such heterogeneous results are
the consequence of the implementation of
fiscal practices in which two perspectives
are blended: the first has been to develop
local capacities to obtain funding –as is
the case in Brazil–, with an approach to
decentralisation based on the transfer
of activities previously performed by
the central public sector; in the second
69
case, decentralisation was opted for
without raising the collection powers of
intermediate governments, as in the cases
of Mexico and Peru.
In this event, it is local governments
that directly control public resources
destined to attend demand for education,
health, public services, and security, etc.
Fiscal federalism is a tool with which the
objective of public expenditure efficiency
can be met, provided this spending is
based on programmes to improve equality
and distribution; its application likewise
depends on the management capacity and
the degree of autonomy of each level of
government.
This section features an explanation of
the characteristics of the fiscal systems
of the countries under study and special
focus on the way in which the resources
of federal governments are allocated
to state (provincial) governments and
local governments. It should be noted
that the countries with federal structures
(Argentina, Brazil and Mexico) are
distinguished from the case of Chile,
which has a unitary-type government. The
purpose is to find elements with which
it is possible to associate the degree of
decentralisation with efficiency in the
use of resources by means of the impact
of social public expenditure on local
development, and to determine which
factors condition this relationship.
Diagram 1. Financing of
decentralisation
Transparency
Growth
objectives
Transfers
Compensation
Search for
efficiency
Fair tax
system
Macro-economic
stability
70
Financing of
decentralisation
External sources
Self-generated
fiscal resources
Capacity to
assume debt
Responsibility
Willingness
More efficient
provision
of public
services
Argentina, Brazil and Mexico are federal
republics in which local governments
have ceded many of their functions of
collection and, therefore, of allocating
public resources to the federation;
nonetheless, recent years have seen the
implementation of a series of reforms
addressed to granting greater autonomy to
sub-national governments. These reforms
have arisen because of the need to
increase efficiency in the use of resources,
to improve the impact that public policies
have on dealing with problems of local
development and social backwardness,
and to give localities greater autonomy.
Chile, as a unitary state, has a centralised
organisation and provides a case with
which to compare the advantages and
disadvantages of federalist models. This
section features analysis both of the main
characteristics of the general allocation
of public resources (expenditure) and the
specific case of transfer systems and their
conditional nature. This involves the use
of country-specific explanatory tables
and, in the case of Chile, an explanation
of the structure of the public budget
and its distribution from the centre by
administrative levels
5.3. Transfers in Argentina
In Argentina, social expenditure
(education, culture, housing, town
planning, security and social welfare)
is a component that was transferred
to sub-national governments through
a system of transfers, although the
provinces also provide basic public
services: administration, public security
(provincial and local).
The provinces play a discernibly active
role in managing social expenditure. The
importance of this budget item lies in
the great social backwardness existent in
the Republic of Argentina, resulting from
recurrent episodes of economic crisis (the
most recent of which occurred in 20002001). Decentralised social expenditure
currently represents little over 10% of its
GDP.
Expenditure is allocated to the
provinces through the Argentinean
intergovernmental transfer regime,
based on the Federal Tax-sharing
system (CFI) established by Law 23,548.
This legislation establishes primary
distribution from the central government
to the provinces of 57.36% of taxes
collected nationally as value added tax
(VAT), as income tax and as some fuel
taxes. These funds, which reach the
provinces through this mechanism, are
not earmarked for a specific purpose and
the use thereof may therefore be freely
decided.
Some other transfers are conditional
upon allocation to a sector or activity
for a specific purpose. These funds
are generally earmarked for financing
services that the federal government
decentralises to the provinces: education
and health, and other activities
associated with the construction of
housing (National Housing Fund,
FONAVI), basic infrastructure works
71
(Buenos Aires Suburban Fund), electricity
infrastructures (Fund for the Electric
Development of the Interior, FEDEI),
social security and roads.
The system for distributing transfers
depends on a series of variable federal
tax-sharing parameters. Funds are
distributed in accordance with the
percentages directly established in Law
23,548 and are not specifically itemised;
the Buenos Aires suburban fund and
basic social infrastructure are transfers
that are financed by withholding 14% on
income tax; the same is the case for the
FONAVI, for electricity and road works,
which are financed by withholding tax
on fuels, gas and electrical energy.
Table 18. Argentina: own
revenue and transfers to
the provinces
distribution of the National Treasury
Contributions (Aportes al Tesoro
Nacional, ATN) is totally discretionary.
There has been an upward trend in the
evolution of provincial revenue: it rose
from 10.5% of GDP in 2003 to 13.6% in
2009, because of an increase in revenue
generated by the provinces and transfers,
although transfers have grown quicker
than province-generated revenue. The
rise in transfers seems to have been
encouraged as a complement to fiscal
effort being made by the provinces, all of
which appears to demonstrate a virtuous
circle for provincial public finances.
There are also transfers that finance
the decentralisation of national public
services to the provinces, the distribution
of which depends on the services
transferred. Lastly, there is also a fund
for compensating provincial imbalances,
which is distributed equally, while
Federal Tax-sharing (CFI)
(76% of the total)
• Amount: 57.05% of federally
collected tax. Some of the
total assignable by law may be
excluded.
• Distribution: There is no explicit
formula. The law directly
determines the distribution
percentages by province.
• Conditions: Not earmarked.
FONAVI
Diagram 2. Argentina:
main federal transfers
• Amount: 8% of the total
• Distribution: –
• Conditions: Earmarked for the
construction of housing.
Total
Own revenue generated by the province
Transfers
1993
10.5%
4.6%
5.9%
1994
10.4%
4.7%
5.7%
1995
10.1%
4.5%
5.6%
1996
10.3%
4.5%
5.7%
1997
10.5%
4.6%
6.0%
1998
10.7%
4.7%
6.0%
1999
11.0%
4.8%
6.2%
2000
11.2%
4.9%
6.3%
2001
10.9%
4.7%
6.2%
2002
10.1%
4.6%
5.5%
2003
11.1%
5.2%
6.0%
2004
12.5%
5.3%
7.1%
2005
12.8%
5.3%
7.5%
2006
12.8%
5.5%
7.3%
2007
13.1%
5.3%
7.8%
2008
13.2%
5.6%
7.6%
2009
13.6%
5.8%
7.7%
Source: National Directorate of Fiscal Coordination with the Provinces.
5.4. Public expenditure and
transfers in Brazil
Source: Aghón, Gabriel and
Casas, Carlos (1996).
72
In budgetary matters, Brazilian
legislation establishes the general
guidelines only for producing the
national budget and not for state and
municipal government budgets; in other
words, public expenditure in Brazil is
highly ambiguous and discretionary.
73
Some specialists consider that Brazilian
federalism is incomplete, despite reforms
to the Brazilian Constitution in 1988.
These changes tackled the needs of
states and municipalities with regard to
the decentralisation of public resources,
but the establishment of respective
responsibilities, especially in social
matters, remained unresolved. Brazilian
fiscal federalism is characterised by
strong regional disparities and deeprooted municipal tradition. This situation
points to the existence of pressure from
the most backward regions on the federal
government in attempting to obtain
greater financial resources, and to a
demand for greater autonomy from the
Table 19 shows that the institutions to
which the greatest quantity of resources
are transferred are Bahia, Minas Gerais
and São Paulo, the development
conditions of which are highly disparate;
in the three cases, a greater quantity of
resources has been transferred to the
municipalities and derived from the
system of constitutional transfers.
Transfers
to states
Transfers to
municipalities
Constitutional
transfers
Total
Acre
2.9%
0.7%
nd
nd
Alagoas
3.6%
2.6%
nd
nd
Amazonas
2.6%
1.7%
nd
nd
Amapá
2.9%
0.5%
nd
nd
Bahia
8.7%
8.8%
8.9%
7.1%
Ceará
6.5%
5.5%
5.8%
4.9%
Federal District
0.7%
0.3%
nd
nd
Espírito Santo
2.0%
1.8%
nd
nd
Goiás
2.9%
3.6%
nd
nd
Maranhão
6.4%
4.2%
5.3%
4.3%
States
➜
local governments of the more advanced
regions. In important items of social
expenditure, federal transfers therefore
exist side-by-side with expenditure
controlled by local governments.
Table 19. Brazil:
transfers to states and
municipalities, 2010
Minas Gerais
5.8%
12.4%
9.4%
7.5%
Mato Grosso do Sul
1.4%
1.7%
nd
nd
Mato Grosso
2.7%
2.0%
nd
nd
Pará
6.0%
3.9%
4.9%
4.0%
Paraíba
4.2%
3.2%
3.7%
3.0%
Pernambuco
6.1%
5.0%
5.3%
4.5%
Piauí
3.8%
2.8%
nd
nd
Paraná
3.6%
6.5%
5.2%
4.2%
Rio de Janeiro
2.7%
3.1%
nd
nd
Rio Grande do Norte
3.7%
2.5%
nd
nd
Rondônia
2.5%
1.0%
nd
nd
Roraima
2.1%
0.6%
nd
nd
Rio Grande do Sul
3.4%
6.5%
5.8%
4.0%
Santa Catarina
1.8%
3.6%
nd
nd
Sergipe
3.6%
1.5%
nd
nd
São Paulo
3.6%
12.5%
8.4%
6.7%
Tocantins
3.8%
1.6%
nd
nd
100.0%
100.0%
100.0%
100.0%
1.27%
1.35%
3.20%
5.82%
Total
% of GDP
Source: Secretary of the National Treasury (DOU).
➜
74
For states in Brazil intergovernmental
transfers comprise several funds: the most
significant are the State Participation
Fund (FPE) and the Municipalities
Participation Fund (FPM), for which
21.5% of total national government
75
revenue from income tax (IR) and from
industrial products (IPI) are destined to
the states and 22.5% to the municipalities;
states must allocate 25% of revenue from
the Tax on the Circulation of Goods and
Services (ICMS) to the municipalities.
Other intergovernmental transfers are
associated with other taxes (for example,
states are entitled to receive 20% of any
tax created by the federation and states
allocate 50% of the rural territorial tax
to their municipalities) and for different
5.5. Public expenditure and
transfers in Chile
items associated with transferred public
services contemplated in the federal
budget. Transfers from the Unified
Health System (SUS) provide states
and municipalities access to federal
resources in accordance with population
criteria (50%) and with respect to the
implementation of public health projects
(50%).
State Participation
Fund (FPE)
Municipalities Participation
Fund (FPM)
• Amount: 21.5% of revenue
from income tax and tax
on industrial products. The
base is established by the
Constitution.
• Distribution: fixed ratings
determined by law
whereby the share of São
Paulo is limited to 1% and
of the southern states to
15%.
• Conditions: limited (25%
must be allocated to
education).
• Amount: 22.5% of revenue
from income tax and tax
on industrial products. The
base is established by the
Constitution.
• Distribution: 10%
for municipal capitals
(directly proportional to
population and inversely
proportional to per capita
income) and 90% for other
municipalities.
• Conditions: limited
(25% must be allocated
to education) while
the central authorities
can earmark specific
funds for debts and for
unemployment insurance
funds.
Diagram 3. Brazil: main
federal transfers
Transfers from the Unified
Health System (USU) (states
and municipalities)
• Amount: budget process
based on contributions
and other items from the
federal social security
budget.
• Distribution: 50%
allocated by population
and 50% by projects
and programmes based
on agreements between
units of government and
Ministry of Health bodies.
• Conditions: conditional
upon the financing of
public networks and
earmarked for the
payment of care, projects
and investments.
Tax rate levied on the
Circulation of Goods and
Services (from states to
municipalities)
• Amount: 21.5% of
revenue from the Tax on
the Circulation of Goods
and Transportation and
Communication Services.
• Distribution: 75% of the
added value generated by
each municipality or upon
criteria established by
state law.
• Conditions: limited (25%
must be allocated to
education).
Source: Aghón, Gabriel and
Casas, Carlos (1996).
76
Diagram 4. Chile: main
transfers to municipalities
Although Chile has a unitary government,
its public expenditure structure envisages
at least four types of transfers among
central government and sub-national
governments. Unlike federalist
governments, however, in Chile resources
are allocated directly by the General
Treasury of the Republic in accordance
with the following criteria: a) free fiscal
National Regional
Development Fund (FNDR)
Specific-sector Regionally
Allocated Investment (ISAR)
• Amount: budget resources.
• Distribution: territorial
compensation is sought.
One of the variables that
influences the amount
of resources allocated is
distance with respect to
the capital of the Republic.
Another is population
density and, inversely
proportional, regional
product per capita.
• Conditions: conditional
and earmarked for
financing investments
in productive and
social infrastructure
of local interest (60%
of investment is made
through this channel).
• Amount: budget resources
for investment of sectorial
ministries.
• Distribution: discretionary
and project-based.
• Conditions: regional levels
of ministries are entrusted
with implementation.
contribution; b) subsidies; c)
complementary operations; and d) public
debt service. Of the total revenue from
territorial tax, 40% is transferred directly
to the municipalities via adjunct accounts,
and the remaining 60% form the common
municipal fund. The institutions also
transfer resources to the municipalities in
accordance with fiscal contribution. This
transfer takes place through the Local
Development Programme, which is run by
the Ministry of the Interior through the
Educational subsidies
• Amount: budget resources
from the Ministry of
Education.
• Distribution: amounts are
assigned in accordance
with standards by
student in class in each
municipality.
• Conditions: earmarked for
the operating expenditure
of the education system.
Financing of Municipal Health
Services (FAPEM)
• Amount: budget resources
from the Ministry of
Health.
• Distribution: Ministry of
Health.
• Conditions: conditional
upon agreements between
municipalities and the
Ministry of Health in
proportion to the number
of services and to the
funds with which they will
be financed.
Source: Aghón, Gabriel and
Casas, Carlos (1996).
77
Neighbourhood Improvement Programme,
the Urban and Communal Equipment
Improvement Programme, and the ProRural Programme. Resources from external
loans are likewise transferred to the
municipalities to improve neighbourhoods.
The Ministry of the Interior also assigns
resources for the Municipal Management
Enhancement Programme. The
municipalities, meanwhile, make transfers
to the institutions on the basis of the
following criteria (MIDEH, 2010): a) to
institutions given that, by law,
Year
Revenue from general
government
Revenue from central
government
Municipal revenue
1990
24.0
22.7
2.05
1991
23.6
22.1
2.10
1992
23.8
22.2
2.27
1993
23.4
21.7
2.42
1994
22.9
21.2
2.43
1995
23.4
21.7
2.47
1996
23.6
21.8
2.66
1997
23.5
21.6
2.86
1998
23.0
21.1
2.98
1999
22.4
20.3
3.25
2000
23.1
21.1
3.23
2001
23.6
21.7
3.23
Table 20. Chile: public
revenue as a % of GDP
2002
23.0
21.0
3.26
2003
22.6
20.6
3.10
2004
23.7
22.0
2.72
2005
25.7
23.8
2.91
2006
27.5
25.8
2.65
2007
28.7
26.9
2.69
2008
27.1
25.4
2.85
2009
21.6
20.0
2.67
Source: Office of the Comptroller General.
5.6. Public expenditure and
transfers in Mexico
Public expenditure in Mexico is controlled
both by the federal government and
by state and municipal governments.
Federative institutions are responsible for
administrative expenditure, investment in
public works, economic development and
for the cost of financing state public debt.
There are also federalised resources
(Law of Fiscal Coordination, LCF) that
are divided into two groups: federal
sharing funds (section 28 of the federal
expenditures budget, PEF), which include
federal revenue sharing funds (RFP) and
agreements of states or municipalities
with the federation (Art. 10-A LCF); and
federal contributions (section 33), which
the federal government allocates to subnational governments.
➜
78
➜
municipalities transfer resources to the
National Service for Minors; they also
make transfers to the National School and
Scholarship Assistance Council, which are
deposited through adjunct accounts; and b)
to municipalities. The initial deduction for
transfers among municipalities corresponds
to duplications that arise in operations of
the Common Municipal Fund, to which
municipalities contribute a percentage of
their revenue from municipal taxes and
charges.
a) Federal revenue sharing: this comprises
a pool of resources from federal sharing
funds (RFP):
/ General Revenue-Sharing Fund (FGP).
As per Article 2 of the Law of Fiscal
Coordination, it comprises 20% of federal
revenue sharing funds (federation revenue
from all taxation) in a financial year,
and rights on the extraction for oil and
mining, less the total refunds for these
items. Additional or extraordinary rights
on oil extraction, incentives established in
administrative collaboration agreements,
taxes on the possession or use of
vehicles and on the new automobiles
of institutions with administrative
collaboration agreements regarding these
taxes and other deductions established
in the same article are excluded from
this fund. Distribution of the fund is
based on three criteria: equity (45.17%),
collection efficiency (45.17%) and balance
79
(9.66%), and inversely proportional to the
shares per inhabitant of each federative
institution.
/ The Municipal Development Fund
(FFM) comprises 1% of the General
Revenue-Sharing Fund and is distributed
as follows: a) 16.8% to a municipal
development fund; and b) 83.2% for
institutions coordinated on the basis of
rights established in the provisions of
article 10-A of LCF.
/ The contingency reserve equivalent to
0.25% of the RFP for each financial year.
It is used to support those institutions for
which total share in the FGP and the FFM
falls short of the growth experienced by
the RFP for the financial year in progress
with respect to 1990. Distribution of this
reserve starts with the institution with
the lowest share rating and continues
upwards successively, until resources
in the fund have run out. This rating is
calculated by dividing shares effectively
received by each institution among the
General Revenue-Sharing
Fund (FGP) (share to
institutions)
Municipal Development
Fund (FFM)
(share to institutions)
• Amount: 20% of federal
revenue sharing funds
(RFP), which comprise
income tax (ISR), single
rate business tax (IETU),
cash deposits tax (IDE),
VAT, special tax on
production and services
(IEPS), ownership, tax on
new automobiles (ISAN),
rights on mining and on
oil extraction.
• Distribution: based on
three principles: a) equity:
45.17% in direct proportion
to the population of each
institution; b) efficiency:
45.17% depending on
revenue; c) balance:
the remaining 9.66% is
distributed on an inversely
proportion basis to share
per inhabitant.
• Conditions: not applicable.
• Amount: 1.0% of federal
assignable tax.
• Distribution: a) 16.8%
will be earmarked to a
Municipal Development
Fund; b) 83.2% for
institutions coordinated
on the basis of rights
established in the
provisions of Art. 10a
of the Law of Fiscal
Coordination
• Conditions: not applicable.
Diagram 6. Mexico:
transfer from
federal government
(contributions)
Fund for Strengthening
Municipalities and Federal
District Zones
Diagram 5. Mexico:
transfer from federal
government (shares)
Multiple Contributions Fund
Technological and Adult
Education Fund
Social Infrastructure Fund
Federal contributions:
Contingency reserve
(assignable to institutions)
Compensation reserve
(assignable to institutions)
• Amount: 0.25% of federal
assignable tax. Allocated
to institutions with a low
and insufficient RFP.
• Distribution: starts with
the institution with the
lowest RFP and continues
in ascending order until
resources run out (rating:
received shares / paid
shares).
• Conditions: not applicable.
• Amount: 1%, intended
to compensate losses
resulting from changes in
the share formula.
• Distribution: starts with
the institution least
affected and continues
successively to the most
affected until resources
run out.
• Conditions: not applicable.
additional resources channelled to states and
municipalities. Use thereof is conditional upon the
performance and fulfilment of objectives established
by law for each case. The amount is determined
each year in section 33 of the expenditure budget
of the Federation and is administered through the
following funds:
Health Services Fund
Basic and Normal Education
Fund
Fund for Strengthening
Federative Institutions
State and Federal District
Public Security Fund
Source: created by the author
based on the Law of Fiscal
Coordination.
total shares paid in the financial year in
question.
/ The compensation reserve is intended to
compensate those federative institutions
affected by the change in the share
formula. This reserve is constituted with
the remainder of 1% of the RFP, and with
the portion deriving from the FFM. The
amount involved is determined by
subtracting the effective share of the year
in question from the shares that would
have been allocated in accordance with
the provisions effective on 31 December
1990. It is distributed initially to the
institution least affected and so on to the
most affected, until the resources in the
fund run out.
b) Federal contributions, additional
resources that the federation channels to
states and municipalities on the condition
that specific objectives established by
law are achieved and fulfilled. These
Source: created by the author
on the basis of the Law of Fiscal
Coordination.
80
81
resources, known in the Federation
expenditure budget as section 33, are
governed by chapter V of the Law of
Fiscal Coordination, and are distributed
though eight funds: 1) the basic and
normal education fund; 2) the health
services fund; 3) the social infrastructure
fund; 4) the fund for strengthening
municipalities and Federal District zones;
5) the multiple contributions fund; 6) the
technological and adult education fund;
7) the fund for state and Federal District
public security; and 8) the fund for
strengthening federative institutions.
➜
redistributing functions to state and
municipal level rather than in seeking
specific sectorial objectives geared to
planning and promoting certain regions.
The significance of transfers is limited
and accounts for scarcely 7.2% of GDP,
which is basically the result of the fiscal
weakness of the Mexican state.
Table 21 shows that the most significant
transfers for 2010 were those assigned
to the General Revenue-Sharing Fund,
and those earmarked for education,
for decentralisation agreements and
for health. This shows the interest in
Pesos (in millions)
% of GDP
Total shares in federal revenue and economic incentives (section 28)
437,334
3.33
General Revenue-Sharing Fund
332,308
2.53
Municipal Development Fund
16,587
0.13
Auditing Fund
20,138
0.15
Compensation Fund
3,859
0.03
Hydrocarbon Extraction Fund
3,252
0.02
Special tax on Production and Services
7,185
0.05
0.136% federal tax revenue assignable to border or maritime
municipalities
2,253
0.02
I
Table 21. Mexico: shares
in federal revenue and
contributions paid to
states, municipalities
and Federal District from
January to December
2010
Additional tax on oil extraction for border or coastal municipalities
materially involved therein and through which goods are imported or
exported
Economic incentives
II
256
0.00
51,516
0.39
Federal contributions (section 33)
434,246
3.31
Basic and Normal Education Fund
249,085
1.90
Health Services Fund
53,097
0.40
Social Infrastructure Fund
41,387
0.32
Multiple Contributions Fund
13,475
0.10
Fund for Strengthening Municipalities and Federal District Zones
42,418
0.32
Fund for State and Federal District Public Security
6,917
0.05
Technological and Adult Education Fund
4,692
0.04
Fund for Strengthening Federative Institutions
23,176
0.18
III
Decentralisation agreements
71,235
0.54
Total
942,815
7.18
Source: Secretariat of Finance and Public Credit (SHCP), web page, May 2011.
5.7. Overview of transfer systems
Use of methodology applied by Finot
(2005),13 which classifies the different
transfer systems analysed and presents
their characteristics and evolution
➜
82
13 Finot, Iván (2005). ‘Decentralization, territorial
transfers and local development.’ CEPAL Review
(no. 86, August, pages 29-46).
in diagram format, yields a model of
distribution according to their local
contribution and to their use
(see table 22).
This classification suggests the
conclusions expressed in diagram 7,
which sums up the situation in the
countries in the study. The chart shows
that, with the exceptions of the share
system in Mexico and the emerging
system in Colombia, the basic transfer
83
Table 22. Factors
conditioning
transfers and type of
decentralisation
Local contribution
Conditioning factors
No
Yes
No
Political decentralisation of
expenditure
Political decentralisation
Yes
Decentralisation of operational
policy
Operational > political
decentralisation
By use
Source: Finot (2005).
Autonomy of expenditure
Argentina
Diagram 7. Latin America:
system of transfers
Mexico
(section 28)
Brazil
Chile
Associated
with local
effort
(-)
systems adopted in Latin America do not
prompt expenditure to depend on local
contributions. Given that they do not
have this automatic control mechanism,
84
(-)
Funding from co-financing
there is therefore a tendency to increase
administrative control mechanisms, as
occurs regularly on programmes financed
with earmarked transfers.
distribution, the latter of which is aimed
at guaranteeing specific levels of access
to the whole population. However,
establishing such differentiation, which
is rather harder for the federal countries,
is precisely what is currently happening
throughout the region. Although this
can be observed in Brazil and, more
clearly, in Chile, it is in Columbia where
the differentiation has been the sharpest,
as mentioned previously. To date,
decentralisation processes have been
addressed mainly to the implementation
of social policies. Even the conditions
imposed on multi-purpose transfers in the
new Colombian system demonstrate this
bias.
The reason for this situation –as stated
on other occasions– is basically because
in the political context in which the
processes were initiated, the necessary
difference was not made between
territorial distribution and social
Colombia
Direct financing of social
services (Brazil, Chile,
Colombia, Mexico)
There is therefore a clear tendency
towards abandonment of the political
decentralisation part of expenditure, even
in Chile. The Mexican system, meanwhile,
may stimulate fiscal efficiency, but would
not be yielding similar results in terms
of equity: the fact that transfers are
proportional to increases in tax collection
may actually be multiplying disparities, as
governments with fewer resources would
be in a worse situation even to invest in
improving their collection procedures.14
The Mexican system is, moreover, geared
to the states and, only through these, to
the municipalities. Lastly, the amounts
involved in these unrestricted transfers
are still notably lower than those for
earmarked transfers, which leaves plenty
of room to improve this system and even
generate a similar system addressed to
the municipalities, while maintaining the
fundamental efficiency mechanism upon
which it is based.
Source: based on Finot and
complemented with the previous
diagrams.
14 In the European Union, territorial transfers also
depend on decisions that include the respective
local (from intermediate and/or municipal levels)
and national contributions. However, unlike in
Mexico, such transfers are allocated exclusively
to regions and localities the GDP per capita of
which is lower than the European average, and in
principle proportional to this difference. Currently,
41% are allocated to infrastructure and 34% to
support productive development.
85
6. Latin America: welfare levels, decentralisation
of basic services, overview and initial efforts
to assess the impact
In the past few decades, great progress
has been made towards improving living
standards in Latin America and the
living conditions of millions of people.
This chapter begins with an overview of
the efforts made so far and then moves
on to explain how decentralisation has
contributed to this process.
6.1. Improvements in living
standards and social cohesion
Between 2000 and 2008, the countries
in Latin America managed to boost their
health indicators dramatically towards
achieving the targets set by the United
Nations’ Millennium Development
Goals. The infant mortality ratio was
reduced from 26.5 to 19.2, although
heterogeneity between countries was
considerable. As shown in the following
table, Chile managed to bring its ratio
Table 23. Infant mortality
ratio (per 1,000 live
births)
Country
2000
2008
∆2000-2008
Chile
9.4
7.2
-2.2
Costa Rica
11.5
9.8
-1.7
Uruguay
15.4
11.7
-3.7
Argentina
18.8
13.6
-5.2
Mexico
22.1
15.3
-6.8
El Salvador
27.8
15.6
-12.2
Venezuela
19.9
15.8
-4.1
Panama
19.5
16.2
-3.3
Colombia
22.0
16.7
-5.3
Brazil
28.2
18.3
-9.9
Paraguay
25.4
20.0
-5.4
Peru
35.1
20.7
-14.4
Ecuador
28.0
21.1
-6.9
Nicaragua
34.2
22.9
-11.3
Honduras
32.6
25.7
-6.9
Guatemala
38.6
33.3
-5.3
Bolivia
62.4
41.7
-20.7
LA Average (17)
26.5
19.2
-7.4
2008
> 35
12 to 35
< 12
No data
Source: World Bank, Millennium World Development Indicators.
86
87
down to 7.2; Bolivia has a ratio of 41.7,
which reflects the extremely high range
there is and it could, therefore, be said
that the region lacks even minimum
health standards. One constant, though,
is that the countries with high rates of
infant mortality in the baseline year
show the greatest decrease during the
period, as occurred in Bolivia, Peru,
El Salvador and Nicaragua, whose
reductions were substantial.
Table 25. Improved
sources of drinking water
(% of population with
access)
The region also succeeded in reducing
maternal mortality, down from a ratio of
111 to 87, but with great heterogeneity;
the extremes are once again Chile,
with a ratio of 26, compared to 180 in
the case of Bolivia. As shown in the
following table, the cases of Panama and
Guatemala remained unchanged. In some
countries, the improvements that had
been achieved could not be maintained,
such as in the case of Uruguay, Costa
Country
2000
2008
Chile
29
26
-3
Uruguay
25
27
2
Costa Rica
41
44
3
Brazil
79
58
-21
Venezuela
82
68
-14
Argentina
63
70
7
Panama
71
71
O
Colombia
110
85
-25
90
85
-5
Paraguay
110
95
-15
Peru
160
98
-62
Nicaragua
140
100
-40
Honduras
160
110
-50
El Salvador
140
110
-30
Guatemala
110
110
0
Mexico
∆2000-2008
Ecuador
170
140
-30
Bolivia
300
180
-120
LA Average (17)
111
87
-24
Source: World Bank, Millennium World Development Indicators.
88
2008
Table 24. Maternal
mortality ratio (per
100,000 births)
Country
2000
2008
∆2000-2008
Uruguay
98.0
100.0
2.0
Brazil
93.0
97.0
4.0
Costa Rica
96.0
97.0
2.0
Argentina
96.0
97.0
1.0
Chile
94.0
96.0
2.0
Ecuador
86.0
94.0
8.0
Guatemala
89.0
94.0
5.0
Mexico
90.0
94.0
4.0
Panama
90.0
93.0
3.0
Venezuela*
92.0
93.0
1.0
Colombia
91.0
92.0
1.0
El Salvador
82.0
87.0
6.0
Paraguay
74.0
86.0
12.0
Bolivia
79.0
86.0
7.0
Honduras
80.0
86.0
6.0
Nicaragua
80.0
85.0
5.0
Peru
79.0
82.0
3.0
LA Average (17)
87.5
91.7
2008
> 99
87 to 99
< 86
No data
4.2
*Last available data 2005.
Source: World Bank. Millennium World Development Indicators.
Rica and Argentina, and maternal
mortality ratios even increased, meaning
that these countries fell slightly behind
again.
> 210
29 to 210
< 29
No data
With regard to the provision of basic
health services, the figures show an
increase in access to sources of drinking
water: Uruguay reached 100% of the
population, and the poorest case is Peru,
where only 82% of the population was
covered.
Improved health conditions have been
reflected in the rise in life expectancy
at birth, which rose from 71.8 to 73.7
years, with two cases of over 78 years
found: Costa Rica, with 78.9, and Chile,
with 78.6; the lowest figure was found in
Bolivia, with an average life expectancy
of 65.7 years. Nicaragua, Peru and Bolivia
stand out as the countries with the
greatest increases in life expectancy, with
rises of 3.5, 2.7 and 2.7 years respectively,
while Costa Rica, Uruguay, Mexico and
Venezuela showed the smallest increase,
89
Country
2000
2008
∆2000-2008
2008
Table 26. Life expectancy
at birth (years)
Table 27. Primary
education completion
rate (% of the total)
Country
2000
2008
∆2000-2008
Colombia
95.2
110.5
15.3
Costa Rica
77.8
78.9
1.1
Chile
76.8
78.6
1.8
Uruguay
97.3
106.0
8.7
Uruguay
74.9
76.0
1.1
Brazil*
107.7
105.8
-1.9
Panama
74.3
75.7
1.4
Mexico
99.9
104.1
4.2
Argentina
73.8
75.3
1.6
Ecuador
98.2
102.6
4.4
Ecuador
73.4
75.1
1.8
Argentina
100.2
102.4
2.2
Mexico
74.0
75.9
1.1
Panama
94.1
101.9
7.8
Venezuela
73.3
73.5
0.3
Peru
101.7
101.0
-0.8
Peru
70.5
73.3
2.7
Bolivia
98.9
98.8
-0.1
Nicaragua
69.7
73.1
3.5
Venezuela
83.4
95.4
12.0
Colombia
71.0
73.0
2.0
Chile
98.1
94.8
-3.3
Brazil
70.2
72.4
2.2
Paraguay
91.9
94.2
2.3
Honduras
70.3
72.2
1.9
Costa Rica
86.5
92.9
6.3
Paraguay
70.1
71.9
1.8
El Salvador
87.7
89.4
1.6
El Salvador
69.7
71.3
1.6
Guatemala
57.7
80.0
22.3
Nicaragua
65.8
74.5
8.8
Guatemala
67.7
70.3
2.6
Bolivia
63.0
65.7
2.7
LA Average (17)
71.8
73.7
1.9
> 74
67 to 74
< 67
No data
LA Average (16)
91.5
97.1
5.6
2008*
> 98
88 to 98
< 88
No data
*Last available data 2005.
Source: World Bank, Millennium World Development Indicators.
Source: World Bank, Millennium World Development Indicators.
of just 1.1 years for the first three and 0.3
for the last case.
In education, improvements were made to
primary education completion rates, with a
group of eight countries achieving this goal;
however, the rest of the countries need to
redesign their education strategies in order
to meet this target, especially the Central
American countries.
90
As we have seen throughout this section,
these indicators assess the efforts made in
the region in terms of social cohesion, but
there is great heterogeneity in the progress
made and levels reached. In terms of the
issue we are interested in, the question that
arises is: can decentralisation processes
help to accelerate this increase in living
standards?
6.2. Decentralisation to support the there is no central body responsible for
planning and setting standards, as in
rise in living standards
Throughout the history of decentralisation
in Latin America, the discussion has
centred on ensuring that basic services are
provided by the level of government that
can most effectively deliver them; this
perspective is dominated by the European
idea of subsidiarity. However, given that
the European case, the mechanism that
has been used in this process involves
political-institutional agreements
determined by the situation in each
country. For this reason, the rhythm and
quality of the efforts made vary across
the region. The following table shows the
areas of decentralised expenditure in four
91
countries; as can be seen, decentralisation
essentially occurs on a sub-national scale,
and basic infrastructure is decentralised
on a municipal level in Brazil and Mexico,
while education and primary healthcare
are decentralised in Chile.
The next section presents a summary of
how this strategy has worked in Brazil,
Chile and Mexico in terms of increasing
minimum welfare levels. This information
is based on the results of the document
‘Decentralisation of essential services.
The cases of Brazil, Chile, Colombia,
Services
made by Brazil’s institutions, with a clear
leadership by the different states in the
implementation of priority action and with
the growing involvement of municipal
authorities. The decentralisation process
shows the following characteristics:
Costa Rica and Mexico in health services,
education, waste disposal, security and
promotion.’15
In Brazil, progress has been made in
designing a broad coverage strategy for
essential services that includes programmes
for social infrastructure, education,
health services, sanitation, pensions and
productive development, which have
been accompanied by large budgets.
These efforts have gained a basic social
consensus regarding these priority actions
and programmes, the commitment being
Argentina
Brazil
Chile
Mexico
Basic infrastructure
S
M
S
M
Education
S
S
M
S
Primary healthcare
S
S
M
S
2nd and 3rd level healthcare
S
S
N
S
National (N)
State (S)
Municipal (M)
i)A sustained increase in the resources
that Brazil devotes to essential
services. Increased investment in
social infrastructure, education,
health services, sanitation, pensions
and productive development has
far exceeded the average increases
in annual budgets, which is a clear
Table 28. Latin America,
selected countries:
principal areas of
decentralised expenditure
Table 29. Brazil: literacy
in persons aged 15 years
and above (percentage)
indication of the priority being given
to social issues in central, state and
municipal government action. Tables
22 to 26 show the developments
in terms of literacy, coverage of
education, reduction of infant
mortality, basic services, and housing
conditions.
ii)A society founded on ‘guaranteed
rights’ has started to become
established, i.e. the universalisation of
social benefits, and therefore
governmental responsibility for these
services. This does not only involve
2000
2007
∆ 2000-2007
Federal District
94.97%
96.27%
1.30%
Rio de Janeiro
93.98%
95.65%
1.67%
Santa Catarina
93.17%
95.56%
2.39%
São Paulo
93.83%
95.39%
1.57%
Rio Grande do Sul
93.94%
95.03%
1.09%
Paraná
89.81%
93.44%
3.64%
Amapá
90.44%
93.20%
2.76%
Amazonas
91.25%
92.02%
0.77%
Mato Grosso do Sul
88.99%
91.65%
2.66%
Espírito Santo
88.87%
91.48%
2.61%
Goiás
87.46%
91.17%
3.71%
Minas Gerais
87.83%
91.11%
3.28%
Source: Finot (2007).
15 ECLAC (2011). ‘Decentralisation of essential services. The cases of Brazil, Chile, Colombia, Costa
Rica and Mexico in health services, education,
waste disposal, security and promotion.’ Project
Collection Document, compiled by Sergio Galilea,
O., Leonardo Letelier, S. and Katherine Ross, S.
92
➜
93
➜
➜
Rondônia
90.31%
90.32%
0.00%
Rio de Janeiro
92.65
97.68
5.03
83.19
86.53
3.34
Mato Grosso
88.20%
89.92%
1.72%
São Paulo
95.57
97.61
2.04
83.93
85.96
2.03
Roraima
91.27%
89.63%
-1.65%
Rio Grande do Sul
96.59
97.61
1.02
76.54
80.00
3.46
Pará
87.52%
88.26%
0.75%
Mato Grosso do Sul
94.24
97.42
3.18
71.99
76.35
4.36
Tocantins
78.86%
85.66%
6.80%
Federal District
96.09
97.33
1.24
84.26
88.02
3.76
Acre
84.35%
84.18%
-0.17%
Paraná
94.95
97.25
2.30
74.72
81.49
6.77
Sergipe
76.06%
83.21%
7.15%
Roraima
97.48
97.24
-0.24
81.57
87.83
6.25
Bahia
75.43%
81.54%
6.12%
Minas Gerais
94.60
97.13
2.54
75.31
81.17
5.86
Pernambuco
75.17%
81.50%
6.33%
Amapá
96.07
97.13
1.07
78.72
87.15
8.43
Ceará
71.96%
80.84%
8.88%
Rio Grande do Norte
93.22
97.13
3.91
75.88
83.02
7.14
Rio Grande do Norte
74.48%
80.39%
5.91%
Piauí
89.63
97.04
7.41
75.64
82.07
6.43
Maranhão
71.05%
78.50%
7.45%
Ceará
90.80
96.75
5.95
79.94
79.41
-0.52
Paraíba
74.02%
76.52%
2.50%
Pernambuco
89.49
96.62
7.13
72.98
78.50
5.52
Piauí
68.38%
76.48%
8.10%
Bahia
90.42
96.31
5.90
79.53
83.15
3.62
Alagoas
67.27%
74.80%
7.54%
Mato Grosso
92.66
96.22
3.56
76.03
79.65
3.62
Amazonas
91.75
96.21
4.46
81.96
85.68
3.72
Espírito Santo
93.73
96.15
2.42
73.10
75.47
2.37
Paraíba
93.10
96.13
3.03
77.18
79.11
1.93
Sergipe
90.45
95.55
5.09
78.09
82.46
4.37
Pará
91.44
95.29
3.85
79.58
78.11
-1.47
Rondônia
95.19
95.19
0.00
75.93
73.80
-2.13
Alagoas
84.76
94.93
10.18
71.43
77.81
6.38
Source: Institute for Applied Economic Research (IPEA).
Primary/1
Secondary/2
2000
2007
∆ 2000-2007
2000
2007
Santa Catarina
97.07
98.61
1.54
Tocantins
90.72
97.88
Goiás
94.40
97.69
∆ 2000-2007
74.57
80.59
6.03
7.16
83.17
82.30
-0.87
3.28
78.75
82.66
3.90
➜
94
Table 30. Brazil: coverage
of basic education
(percentage)
➜
95
➜
➜
Maranhão
85.45
94.62
9.18
75.38
82.04
6.66
Acre
90.24
91.24
1.00
79.45
75.07
-4.38
1/ Percentage of people between 6 and 11 years of age.
2/ Percentage of people between 12 and 14 years of age.
Source: IPEA.
1990
2000
Acre
37.51
25.88
-11.63
Alagoas
59.64
37.58
-22.06
Amazonas
48.38
36.67
-11.71
Amapá
38.50
30.15
-8.35
Bahia
59.20
40.38
-18.82
Ceará
49.87
34.82
-15.05
Federal District
22.20
19.07
-3.13
Espírito Santo
30.23
18.42
-11.81
Goiás
25.16
19.88
-5.28
Maranhão
69.58
45.93
-23.65
Minas Gerais
27.38
20.70
-6.68
Mato Grosso do Sul
30.60
20.91
-9.69
Mato Grosso
29.25
24.13
-5.12
Pará
47.10
29.82
Paraíba
58.87
Pernambuco
50.03
Table 31. Brazil: infant
mortality ratio* (under
one year of age)
∆ 1990 - 2000
58.69
39.36
-19.33
Paraná
33.42
17.55
-15.87
Rio de Janeiro
25.20
18.73
-6.48
Rio Grande do Norte
55.67
34.48
-21.19
Rondônia
35.63
24.68
-10.95
Roraima
37.74
30.79
-6.94
Rio Grande do Sul
20.77
16.30
-4.47
Santa Catarina
23.49
16.14
-7.35
Sergipe
53.28
39.72
-13.56
São Paulo
24.69
16.18
-8.51
Tocantins
54.32
38.93
-15.38
* Ratio per 1,000 live births.
Source: IPEA.
Table 32. Brazil:
percentage of homes
with access to drainage
and electricity
Drainage
Electricity
1990
2000
∆1990-2000
1990
2000
∆1990-2000
Federal District
75.3%
83.5%
8.1%
98%
100%
1.3%
São Paulo
75.9%
81.7%
5.7%
99%
100%
0.5%
Minas Gerais
55.8%
68.2%
12.4%
87%
96%
9.5%
-17.28
Rio de Janeiro
45.7%
62.5%
16.8%
98%
100%
1.1%
41.69
-17.19
Espírito Santo
42.9%
56.2%
13.3%
94%
99%
4.8%
41.95
-8.08
Paraná
21.5%
37.7%
16.2%
92%
98%
6.1%
➜
96
Piauí
➜
97
➜
Bahia
6.9%
34.5%
27.6%
71%
83%
11.7%
Pernambuco
15.5%
34.2%
18.7%
82%
96%
14.4%
Goiás
26.9%
30.4%
3.5%
87%
97%
9.7%
Paraíba
12.5%
28.9%
16.4%
74%
95%
20.5%
Sergipe
17.0%
27.8%
10.9%
81%
92%
11.7%
Rio Grande do Sul
11.3%
27.4%
16.1%
93%
98%
5.1%
Ceará
6.3%
21.4%
15.1%
67%
89%
22.1%
Amazonas
1.0%
20.0%
19.0%
75%
85%
9.5%
Acre
3.6%
19.5%
15.9%
66%
79%
12.7%
Santa Catarina
4.3%
19.5%
15.2%
95%
99%
3.5%
Rio Grande do Norte
6.9%
16.5%
9.6%
83%
94%
Mato Grosso
5.5%
15.7%
10.2%
75%
Alagoas
7.2%
15.3%
8.1%
Mato Grosso do Sul
8.7%
11.8%
Roraima
4.7%
Maranhão
Drinking water
Solid floor
2000
2007
∆2000-2007
2000
2007
∆2000-2007
Acre
60%
63%
3%
97%
88%
-9%
Alagoas
70%
76%
7%
94%
97%
2%
Amazonas
83%
75%
-8%
98%
94%
-3%
Amapá
76%
90%
14%
96%
97%
1%
Bahia
62%
80%
18%
93%
97%
4%
Ceará
57%
80%
23%
90%
95%
5%
Federal District
95%
98%
3%
97%
99%
2%
Espírito Santo
93%
99%
5%
97%
99%
1%
Goiás
90%
97%
7%
98%
98%
0%
10.9%
Maranhão
40%
62%
22%
54%
78%
24%
90%
14.2%
Minas Gerais
90%
96%
7%
99%
99%
1%
77%
91%
14.1%
Mato Grosso do Sul
89%
98%
8%
96%
100%
4%
3.1%
88%
96%
7.2%
Mato Grosso
78%
92%
14%
95%
97%
2%
10.7%
6.0%
78%
87%
9.2%
Pará
64%
69%
5%
92%
94%
2%
7.1%
9.2%
2.1%
59%
80%
20.8%
Paraíba
66%
81%
15%
97%
98%
1%
Pará
1.4%
7.4%
6.0%
66%
79%
12.9%
Pernambuco
68%
78%
9%
96%
98%
2%
Amapá
5.6%
6.1%
0.6%
85%
95%
10.4%
Piauí
49%
65%
16%
85%
90%
5%
Piauí
1.3%
4.0%
2.7%
55%
76%
20.7%
Paraná
95%
99%
4%
98%
99%
0%
Rondônia
0.2%
3.7%
3.4%
63%
85%
22.2%
Rio de Janeiro
96%
98%
2%
99%
100%
0%
Tocantins
0.0%
2.8%
2.8%
54%
78%
24.3%
Rio Grande do Norte
73%
86%
13%
95%
97%
2%
Source: IPEA.
98
Table 33. Brazil:
percentage of people
living in homes with
access to drinking water
and a solid floor
➜
99
Table 34. Brazil: reduction
of poverty, 2005-2009
➜
Rondônia
85%
83%
-2%
97%
96%
-1%
Roraima
95%
84%
-11%
90%
95%
5%
Rio Grande do Sul
96%
98%
2%
98%
98%
-1%
Santa Catarina
96%
98%
3%
99%
98%
-1%
Sergipe
75%
91%
16%
96%
98%
São Paulo
99%
99%
1%
99%
Tocantins
61%
82%
20%
80%
Households with income per inhabitant below the poverty line
Federative institution
Reduction of poverty
(percentage)
Poverty 2005
Poverty 2009
Bahia
7,124,570
5,512,234
-22.6
São Paulo
6,851,905
4,241,855
-38.1
3%
Pernambuco
4,615,651
3,594,917
-22.1
99%
0%
Ceará
4,147,391
3,085,040
-25.6
91%
11%
Maranhão
3,669,384
2,666,266
-27.3
Pará
3,081,463
2,631,946
-14.6
Minas Gerais
3,744,857
2,356,776
-37.1
Rio de Janeiro
3,125,793
1,982,933
-36.6
Paraíba
1,854,780
1,542,919
-16.8
Alagoas
1,838,558
1,515,188
-17.6
Rio Grande do Sul
2,164,979
1,456,403
-32.7
Paraná
2,204,955
1,304,080
-40.9
Piauí
1,732,289
1,205,435
-30.4
Rio Grande do Norte
1,440,177
1,088,596
-24.4
Amazonas
1,279,359
1,051,497
-17.8
904,947
765,272
-15.4
1,141,578
689,425
-39.6
Espírito Santo
645,193
435,309
-32.5
Santa Catarina
598,344
379,701
-36.5
Mato Grosso
595,776
371,824
-37.6
Source: IPEA.
guarantees provided by the
Constitution and laws, but also
sustained public actions to this end.
These efforts can be seen in the
increase of guaranteed schooling, and
the provision of essential medical
services and pension schemes.
iii)Special national programmes have
been set up specifically to meet the
basic needs of Brazilian society,
such as, for example, the Fame Zero
(‘Zero Hunger’) programme. These
national actions have access to special
resources, are clear presidential
priorities and are applied differently
in those states of the Union where
the problems are more severe. This
became particularly relevant when
the Institute for Applied Economic
Research (known by its Portuguese
initials, IPEA) indicated recently
100
that, in Brazil, it should be possible
to eradicate extreme poverty before
2016 – a goal that would have seemed
impossible a decade ago but which is
today seen as feasible.
iv)Despite all the progress made in the
coverage of programmes focused on
essential services, these programmes
still have serious quality problems and
there is a notable inequality in the
standards to which these services are
delivered to the different sectors of
the population. These are the most
important and persistent challenges
facing the situation in Brazil.
v)Very marked differences can be seen
in terms of coverage, quality and
equality if we analyse the essential
services provided in the different
states and territories in the country;
Sergipe
Goiás
➜
101
➜
2000
2009
∆2000-2009
I Tarapacá*
99.4
97.9
-1.5
II Antofagasta
99.5
99.7
0.2
III Atacama
98.4
99.4
1.0
IV Coquimbo
98.0
98.8
0.8
V Valparaíso
98.5
99.0
0.4
VI O´Higgins
98.5
99.3
0.9
VII Maule
98.3
99.3
1.0
VIII Biobío
98.8
99.2
0.4
IX Araucanía
98.2
98.7
0.5
In the case of Chile, basic services, those
delivered to the community and which
basically are incumbent on public action,
have had an interesting evolution over
recent years. Of particular note from
among the relevant aspects are:
X Los Lagos**
98.0
99.2
1.2
XI Aisén
98.6
98.8
0.2
XII Magallanes and Antártica
98.6
100.0
1.4
Metropolitan Region
98.5
99.3
0.8
i)In the past decade, systematic efforts
have been made towards development
with equality, which basically
involves significantly increasing state
obligations and implementing an
extensive set of ‘guaranteed rights’
regarding education and health
services. This has been extended
to a universal pension scheme
(Basic Solidarity Pensions), to the
spread of pre-school education and
healthcare for new-born babies and
children (Chile Crece Contigo, ‘Chile
Grows With You’), among other
governmental initiatives. These
initiatives consist of a set of active
Chile
98.6
99.1
0.6
Rondônia
555,303
351,858
-36.6
Tocantins
534,990
340,396
-36.4
Federal District
459,634
272,652
-40.7
Mato Grosso do Sul
467,083
240,178
-48.6
Acre
305,182
224,345
-26.5
Amapá
218,565
206,168
-5.7
Roraima
174,006
118,337
-32.0
Nacional
55,476,712
39,631,550
-28.6
Fuente: IPEA
more qualitatively severe problems still
persist in parts of the north-east. Also,
in general, the figures show
particularly important problems in
rural areas and metropolitan
settlements which continue to attract
large numbers of migrant populations.
These forms of rural and metropolitan
marginalisation continue to be the
most serious social challenges facing
the country.
vi)Finally, the issue of citizen security
has become an extremely important
national, regional and local problem.
Organised crime, drug-trafficking
networks and crime are the most
serious national issues. This situation
is severely detrimental to stability,
growth and the fight against poverty in
Brazilian society.
102
Table 35. Chile: coverage
of basic education (% of
students of typical age)
* Also includes the region of Arica and Parinacota.
** Also includes the region of Los Ríos.
Source: National Socio-Economic Survey (CASEN). 2000 and 2009.
and positive policies, programmes and
social actions.
ii)The budgets of ministries and services
have been dramatically increased in
terms of social services. Thus, in a
decade of extensive public investment
and increased essential services, the
average global increase has been
doubled.
The coverage of public services grew
substantially; in national terms, coverage
rose from 67% during 2000 to slightly
over 80% in 2009. The thirteen regions all
improved during the period, with region II
Antofagasta showing the best results, with
an increase of 24%.
i)There has been a preference for social
programmes that focus on social
103
Table 36. Chile: coverage
of public health services
(% of total population)
Table 37. Chile: people
living in poverty (% of
total population)
2000
2009
I Tarapacá*
20.8
14.3
-6.5
II Antofagasta
13.4
8.0
-5.4
5.23
III Atacama
23.9
17.5
-6.3
87.51
11.66
IV Coquimbo
24.8
16.6
-8.3
68.39
81.80
13.41
V Valparaíso
18.8
15.1
-3.7
VI O´Higgins
72.95
81.81
8.86
VI O´Higgins
20.9
12.8
-8.1
VII Maule
75.67
88.13
12.47
VII Maule
25.3
20.7
-4.6
VIII Biobío
76.92
86.66
9.73
VIII Biobío
27.1
21.0
-6.2
IX Araucanía
76.57
86.81
10.24
IX Araucanía
32.7
27.1
-5.6
X Los Lagos**
71.65
86.07
14.43
X Los Lagos**
25.6
17.3
-8.3
XI Aisén
63.85
79.13
15.27
XI Aisén
14.3
15.1
0.9
XII Magallanes and Antártica
50.94
74.86
23.92
XII Magallanes and Antártica
11.1
9.1
-2.0
Metropolitan Region
56.64
71.38
14.74
Metropolitan Region
15.1
11.5
-3.6
Chile
67.02
80.88
13.86
Chile
21.1
15.9
-5.2
2000
2009
∆2000-2009
I Tarapacá*
60.48
76.68
16.20
II Antofagasta
47.72
71.77
24.05
III Atacama
73.57
78.80
IV Coquimbo
75.85
V Valparaíso
* Also includes the region of Arica and Parinacota.
** Also includes the region of Los Ríos.
Source: CASEN, 2000 and 2009.
* Also includes the region of Arica and Parinacota.
** Also includes the region of Los Ríos.
Source: CASEN, 2000 and 2009.
sectors with lower relative incomes;
this is the case of programmes such
as Chile Solidario (‘Solidary Chile’),
the Basic Solidarity Pension and the
Chile Barrio (‘Chile Neighbourhood’)
Programme. This focus involves a
programmatic approach to social
issues aimed at targeting the poorest
social sectors (destitution) that are less
cohesive and organised, and also more
104
∆2000-2009
marginalised from the usual public
action.
All of this has enabled poverty levels
to be cut significantly, from 21% of the
Chilean population living in some kind of
poverty, whether poverty or destitution, to
only 15.9% in 2009.
ii)In the previous context, the territorial
dimension of the programmes
–especially the most innovative and
recent ones– is stronger than before,
meaning that there is greater relative
trust in regional and local subnational authorities’ management
capacities, expressed in a greater
management commitment from
regional and municipal governments.
The following table allows us to assess the
efficiency of sub-national governments
in providing basic public services such as
electricity, drainage and drinking water.
The provision of drainage is the area
that shows the greatest improvement,
with 8.7% more homes covered, enabling
coverage to be increased up to 92.5%
of total homes. The supply of electricity
and drinking water to homes also shows
105
Table 38. Chile: coverage
of basic services (% of
total homes with access
to the service)
Electricity
Region
2000
2009
I Tarapacá*
99.1
99.3
II Antofagasta
99.6
III Atacama
Drainage
∆2000-2009
2000
2009
0.2
91.8
95.5
99.9
0.3
98.1
99.3
99.5
0.2
IV Coquimbo
93.9
99.2
V Valparaíso
99.3
VI O´Higgins
important increases, meaning that in these
three indicators the country can claim
coverage of over 90% of the total number
of homes.
iii)For over twenty years now, social
programmes and projects have been
subject to a social performance
Drinking water
∆2000-2009
2000
2009
∆2000-2009
3.7
90.9
95.8
4.9
98.4
0.3
98.7
98.5
-0.2
93.5
96.1
2.7
93.5
96.2
2.7
5.2
81.9
93.1
11.2
82.9
94.5
11.6
99.8
0.5
89.9
95.6
5.7
90.9
95.2
4.2
98.4
99.7
1.3
74.5
88.5
14.0
82.1
93.4
VII Maule
97.4
99.6
2.2
74.6
89.3
14.6
75.4
VIII Biobío
97.6
99.6
1.9
76.9
90.8
13.9
IX Araucanía
91.7
98.4
6.7
68.3
79.2
X Los Lagos**
92.7
98.7
6.0
72.2
XI Aisén
89.3
98.8
9.5
XII Magallanes and
Antártica
98.8
99.6
Metropolitan Region
99.9
Chile
96.7
Table 39. Chile: life
expectancy at birth
(years)
rating awarded by the National
Investment System, which is led
and managed by Chile’s Ministry
of Planning and Cooperation
(MIDEPLAN), and which to a
certain extent guarantees the proper
allocation of resources, a clear
focus and more active sub-national
2000
2007
∆2000-2007
I Tarapacá*
77.59
78.03
0.44
II Antofagasta
75.67
76.05
0.38
11.2
III Atacama
77.42
78.24
0.81
88.7
13.3
IV Coquimbo
77.95
79.08
1.12
80.7
87.1
6.4
V Valparaíso
76.86
77.60
0.75
11.0
70.0
74.7
4.7
VI O´Higgins
76.30
77.59
1.29
86.4
14.2
69.8
79.0
9.2
VII Maule
75.87
77.07
1.20
78.1
94.5
16.4
83.1
90.0
6.9
VIII Biobío
75.76
77.39
1.63
0.8
96.6
97.5
0.9
96.6
96.2
-0.4
IX Araucanía
76.36
77.50
1.14
X Los Lagos**
75.69
76.72
1.03
99.9
0.0
94.3
98.3
3.9
95.7
98.6
2.9
XI Aisén
74.48
78.87
4.39
99.4
2.7
83.9
92.5
8.7
85.4
91.4
6.0
XII Magallanes and Antártica
75.13
77.08
1.95
Metropolitan Region
77.67
78.34
0.67
Chile
76.84
77.81
0.97
* Also includes the region of Arica and Parinacota.
** Also includes the region of Los Ríos.
Source: CASEN, 2000 and 2009.
* Also includes the region of Arica and Parinacota.
** Also includes the region of Los Ríos.
Source: CASEN, 2000 and 2009.
106
107
management scales.
With regard to improving quality of
life standards of the population, the
increasing life expectancy at birth
in Chile clearly supports the positive
results. It has been possible to extend
life expectancy by almost one extra year
in just seven years; in fact, all regions
show improvement in this area.
2000
2009
∆2000-2009
I Tarapacá*
10.4
10.9
0.56
II Antofagasta
10.9
10.6
-0.28
III Atacama
9.8
10.3
0.56
IV Coquimbo
9.3
9.7
0.38
V Valparaíso
10.2
10.6
0.47
VI O´Higgins
8.8
9.5
0.70
VII Maule
8.6
9.0
0.42
VIII Biobío
9.4
9.9
0.52
IX Araucanía
8.8
9.1
0.37
X Los Lagos**
8.5
9.2
0.66
XI Aisén
8.8
9.5
0.64
XII Magallanes and Antártica
10.4
10.2
-0.24
Metropolitan Region
10.7
11.2
0.50
Chile
9.6
10.0
0.40
* Also includes the region of Arica and Parinacota.
** Also includes the region of Los Ríos.
Source: CASEN, 2000 and 2009.
108
Table 40. Chile: average
schooling of the
population aged 15 and
above (years)
iv)The Ministry of Finance (Budget
Department) has carried out ex post
evaluations on most of these actions
involving essential services, which
also generates suitable monitoring
and adjustments to the programmes.
The capacity for readapting the
programmes has usually recognised
decentralisation as the preferred
management method.
Thus, the population has benefitted widely
from decentralisation processes, both in
terms of infrastructure and of transfers
and social programmes. The levels of
schooling achieved perfectly illustrate
the effects of extending the coverage
of education throughout the region, as
well as the implementation of social
programmes. Both factors permitted levels
of schooling to rise from 9.6 to 10 years
on average, during the period 2000-2009.
In the case of Mexico, a group of
particularly important phenomena
occurred in the last decade (which is the
reference time span) such as the acute
crisis that has affected the country and
which has significantly compromised
productive growth, generating a relative
increase in unemployment and the even
wider spread of labour informality. This
has hindered the extent and quality of
many proposals to address the main
deficiencies, increasing the numbers of
people in employment programmes, on
basic incomes and public subsidies. In
Mexican society a more representative
democracy and heterogeneous policy has
taken root, which is evidenced by both
multiparty politics and the emphasis that
elected state and municipal authorities
place on national political dynamics.
State governments and municipal
administrations, and the associative
action between them, have taken on
greater importance. In this varied,
extensive and unequal territorial and
regional situation, Mexico is developing
a complex process of decentralisation;
according to the National Council for the
Evaluation of Social Development Policy
(CONEVAL), of the 253 federal social
development programmes identified,
89% involved the participation of state
governments, and 59% of municipal
governments, while in 36% of the cases
there was some significant mechanism of
intergovernmental coordination. In terms
of social investment, it is very important
that state revenues have practically
tripled in ten years and that, additionally,
the use of discretion when allocating
transfers has been reduced. The Mexican
states depend on a very high proportion
of federal transfers (with an average
index of around 82%), and these same
states decide the final destination of an
estimated figure of less than 40% of their
spending. All the experts agree that states
and municipalities are very ineffective tax
collectors.
This is why this special decentralisation
process has not always involved gaining
more state and municipal autonomy.
109
Table 41. Mexico: literacy
rate
Among other relevant aspects, we would
highlight:
i) There is now a greater variety of
parties in the Mexican political process
which has resulted in leadership by
state governors. The greater political
importance of the states and their
administrations means that other
important mediating and political
forces coexist alongside the president of
the Republic. This relatively ‘increased
political power’ provides more support
for state governments’ management,
despite the centralist constraints that
arise in budget management and in
the established direction of transfers
in what are known as ‘earmarked
programmes’.
ii) Municipalities have been gaining
strength and presence in the country,
in terms of their responsibilities,
competencies and greater resources
(albeit mainly earmarked) and local
leaders have more relative importance.
The varied electoral timetable
contributes to preferential political
attention in increasingly important
local contests. Not being re-elected
also influences an interesting exchange
of functions between federal and state
members of parliament and municipal
administrations.
iii) There is an important increase in the
demand for essential services, both as
a result of the crisis, weak growth and
110
other vulnerabilities affecting Mexican
society. This is basically expressed
in the high rate of unemployment
and general job insecurity. With its
particularities, the situation can be
found in the different states and
territories in the country.
iv) Some traditional social investment
actions from the Secretariat of Social
Development (SEDESOL) have seen
a reduction in their importance,
significance and coverage. Although
the Oportunidades (‘Opportunities’)
programme continues to be an
initiative with a direct influence
on the fight against rural poverty,
SEDESOL’s special national
programmes have less relative
influence today.
v) As regards basic indicators of
education, literacy rates of around
93% of the population have been
recorded, although there are problems
of coverage in states with indigenous
populations. The federative institutions
with the greatest coverage are, in
this case, the Federal District and
Nuevo León, where there is a more
homogeneous population.
vi) Educational coverage at basic and
secondary levels increased at the
secondary level, to the point where a
continuous growth in coverage was
achieved; almost all of the federative
institutions reached coverage of 90%.
Federative institution
2000
2010
∆2010-2000
Aguascalientes
95.1%
96.7%
1.6%
Baja California
96.3%
97.4%
1.1%
Baja California Sur
95.7%
96.8%
1.1%
Campeche
88.1%
91.7%
3.6%
Coahuila
96.0%
97.4%
1.3%
Colima
92.7%
94.9%
2.1%
Chiapas
77.0%
82.2%
5.2%
Chihuahua
95.1%
96.3%
1.2%
Federal District
97.0%
97.9%
0.9%
Durango
94.5%
96.2%
1.7%
Guanajuato
87.9%
91.8%
3.9%
Guerrero
78.4%
83.3%
5.0%
Hidalgo
85.0%
89.8%
4.7%
Jalisco
93.5%
95.6%
2.2%
Mexico
93.5%
95.6%
2.1%
Michoacán
86.0%
89.8%
3.8%
Morelos
90.7%
93.6%
2.9%
Nayarit
90.9%
93.7%
2.8%
Nuevo León
96.6%
97.8%
1.2%
Oaxaca
78.4%
83.7%
5.3%
Puebla
85.3%
89.6%
4.3%
➜
111
➜
➜
Querétaro
90.1%
93.7%
3.6%
05 Coahuila
95.9%
88.9%
97.2%
92.7%
1.3%
3.8%
Quintana Roo
92.4%
95.2%
2.8%
06 Colima
94.1%
86.7%
96.0%
91.1%
1.9%
4.4%
San Luis Potosí
88.6%
92.1%
3.5%
07 Chiapas
87.0%
76.2%
93.1%
86.0%
6.2%
9.8%
Sinaloa
92.0%
95.0%
3.1%
08 Chihuahua
94.0%
84.3%
95.5%
90.8%
1.5%
6.4%
Sonora
95.5%
97.0%
1.5%
09 Federal District
96.9%
94.1%
96.9%
95.2%
0.0%
1.1%
Tabasco
90.2%
92.9%
2.7%
10 Durango
95.0%
83.8%
96.1%
91.1%
1.1%
7.3%
Tamaulipas
94.8%
96.4%
1.6%
11 Guanajuato
94.9%
78.0%
97.0%
90.4%
2.2%
12.4%
Tlaxcala
92.1%
94.8%
2.7%
12 Guerrero
90.8%
83.6%
95.1%
89.3%
4.3%
5.7%
Veracruz
85.1%
88.6%
3.5%
13 Hidalgo
96.2%
88.6%
97.5%
93.9%
1.4%
5.3%
Yucatán
87.6%
90.8%
3.2%
14 Jalisco
95.1%
82.7%
96.2%
90.2%
1.1%
7.5%
Zacatecas
92.0%
94.5%
2.5%
15 Mexico
95.8%
89.3%
96.9%
93.4%
1.0%
4.0%
National total
90.5%
93.1%
2.7%
16 Michoacán
92.8%
77.5%
95.6%
86.3%
2.7%
8.8%
17 Morelos
93.7%
86.6%
96.1%
91.4%
2.4%
4.8%
18 Nayarit
94.7%
87.9%
97.0%
92.8%
2.2%
4.9%
19 Nuevo León
96.4%
91.1%
96.6%
94.0%
0.2%
2.9%
20 Oaxaca
92.2%
83.4%
95.9%
90.4%
3.7%
7.0%
21 Puebla
93.3%
80.4%
96.0%
89.3%
2.7%
8.9%
22 Querétaro
95.2%
84.5%
97.4%
92.4%
2.3%
7.9%
Source: INEGI, Population and Housing Census, 2000 and 2010.
Table 42. Mexico:
coverage of primary and
secondary education
2000
Federative institution
2010
2010-2000
Primary
Secondary
Primary
Secondary
∆ Primary
∆ Secondary
01 Aguascalientes
96.1%
85.4%
97.2%
91.8%
1.1%
6.4%
23 Quintana Roo
94.4%
89.0%
95.6%
92.7%
1.1%
3.8%
02 Baja California
93.1%
88.1%
96.2%
93.9%
3.0%
5.8%
24 San Luis Potosí
95.3%
87.7%
97.5%
93.4%
2.1%
5.8%
03 Baja California Sur
95.3%
90.5%
97.1%
93.8%
1.8%
3.3%
25 Sinaloa
93.3%
85.7%
97.0%
93.3%
3.7%
7.5%
04 Campeche
94.0%
86.1%
96.4%
91.4%
2.4%
5.3%
26 Sonora
95.3%
90.5%
97.1%
94.3%
1.8%
3.7%
➜
112
➜
113
➜
➜
27 Tabasco
94.7%
87.0%
96.6%
92.7%
1.9%
5.7%
Sinaloa
8.0
9.1
1.1
28 Tamaulipas
95.0%
88.3%
96.3%
92.2%
1.2%
4.0%
Tamaulipas
8.0
9.1
1.1
29 Tlaxcala
96.0%
87.4%
97.7%
93.6%
1.7%
6.2%
Colima
8.0
9.0
0.9
30 Veracruz
92.7%
83.6%
95.7%
90.5%
3.0%
6.9%
Morelos
8.0
8.9
0.9
31 Yucatán
95.1%
88.0%
97.1%
93.4%
2.0%
5.4%
Querétaro
8.0
8.9
0.9
32 Zacatecas
95.2%
80.8%
96.9%
91.4%
1.7%
10.6%
Chihuahua
8.0
8.8
0.8
United Mexican States
94.2%
85.3%
96.3%
91.5%
2.1%
6.3%
Jalisco
8.0
8.8
0.8
Tlaxcala
8.0
8.8
0.8
Durango
7.0
8.6
1.6
Nayarit
7.0
8.6
1.6
Tabasco
7.0
8.6
1.6
Campeche
7.0
8.5
1.5
San Luis Potosí
7.0
8.3
1.3
Yucatán
7.0
8.2
1.2
Hidalgo
7.0
8.1
1.1
Puebla
7.0
8.0
1.0
Zacatecas
6.0
7.9
1.9
Guanajuato
6.0
7.7
1.7
Veracruz
6.0
7.7
1.7
Michoacán
6.0
7.4
1.4
Guerrero
6.0
7.3
1.3
Oaxaca
6.0
6.9
0.9
Source: INEGI, Population and Housing Census, 2000 and 2010.
vii) Improvements in literacy and in
access to basic and secondary
education allowed the country to
raise its level of schooling: from
an average of 7.4 to 8.6 years, with
exceptional cases like the Federal
District, which achieved 10.5 years,
and the lowest, Chiapas, with 6.7 years
Federative institution
2000
2010
∆2010-2000
Federal District
10.0
10.5
0.5
Nuevo León
9.0
9.8
0.8
Coahuila
8.0
9.5
1.5
Baja California Sur
8.0
9.4
1.4
Sonora
8.0
9.4
1.4
Baja California
8.0
9.3
1.3
Aguascalientes
8.0
9.2
1.2
Mexico
8.0
9.1
1.1
Quintana Roo
8.0
9.1
1.1
Table 43. Mexico: average
level of schooling
➜
114
➜
115
➜
➜
Chiapas
5.0
6.7
1.7
San Luis Potosí
12.8
9.1
-3.7
National total
7.4
8.6
1.2
Baja California Sur
12.7
9.2
-3.5
Morelos
12.2
9.8
-2.4
Zacatecas
11.7
10.4
-1.4
Quintana Roo
11.4
11.3
-0.1
Veracruz
11.3
10.7
-0.6
Chiapas
11.2
7.3
-4.0
Oaxaca
10.7
8.2
-2.6
Colima
10.7
8.8
-1.8
Hidalgo
10.6
9.5
-1.2
Tamaulipas
9.8
10.5
0.7
Michoacán
8.9
8.9
0.0
Campeche
8.8
7.8
-1.0
Coahuila
8.0
6.8
-1.2
Nayarit
6.4
6.6
0.3
Sinaloa
3.9
6.3
2.5
Guerrero
3.7
6.8
3.2
Durango
2.2
9.0
6.8
13.9
11.3
-2.6
Sourde: INEGI, Population and Housing Census, basic tables, 2000 and 2010.
viii) In terms of health, infant mortality
was cut from 13.9 to 11.3 in the
period 2000-2008; coverage of
health services grew to 65% of
the population in 2010; and these
elements contributed towards a rise
in life expectancy at birth, reaching
76 years.
Federative institution
2000
2008
∆2008-2000
Puebla
22.7
14.9
-7.8
Federal District
21.1
17.2
-3.8
Mexico
20.3
14.3
-6.0
Tlaxcala
19.6
13.7
-5.9
Baja California
19.1
13.6
-5.5
Guanajuato
18.1
12.5
-5.6
Tabasco
17.7
11.7
-6.0
Querétaro
17.3
11.7
-5.6
Yucatán
15.5
13.5
-2.0
Sonora
14.5
11.5
-3.0
Aguascalientes
14.3
10.7
-3.6
Jalisco
14.2
12.0
-2.2
Chihuahua
13.7
12.7
-1.0
Nuevo León
13.3
10.4
-2.9
Table 44. Mexico: infant
mortality ratio* (under
one year of age)
National total
*Per 1,000 live births.
Source: INEGI, birth statistics.
➜
116
117
Table 45. Mexico: life
expectancy at birth
Federative institution
2000
2007
∆2007-2000
Baja California
75.36
77.07
1.70
Federal District
75.33
77.04
1.71
Nuevo León
75.02
76.77
1.75
Chihuahua
74.95
76.72
1.76
Coahuila
74.87
76.64
1.77
Aguascalientes
74.76
76.55
1.79
Sonora
74.71
76.50
1.80
Baja California Sur
74.65
76.46
1.81
Jalisco
74.60
76.41
1.81
Mexico
74.54
76.36
1.82
Colima
74.52
76.34
1.83
Tamaulipas
74.47
76.30
1.83
Quintana Roo
74.34
76.18
1.84
Morelos
74.31
76.16
1.85
Sinaloa
74.11
75.99
1.88
Tlaxcala
74.11
75.99
1.88
Querétaro
74.06
75.94
1.89
Nayarit
73.95
75.86
1.91
Durango
73.94
75.85
1.90
Guanajuato
73.90
75.81
1.91
Michoacán
73.66
75.61
1.94
➜
Zacatecas
73.59
75.54
1.95
San Luis Potosí
73.50
75.47
1.96
Puebla
73.48
75.45
1.97
Yucatán
73.49
75.45
1.97
Tabasco
73.44
75.42
1.98
Campeche
73.44
75.41
1.98
Hidalgo
73.18
75.19
2.01
Veracruz
73.09
75.11
2.02
Guerrero
72.54
74.64
2.10
Oaxaca
72.52
74.62
2.11
Chiapas
72.29
74.42
2.14
National total
74.03
75.94
1.90
Source: National Population Council (CONAPO). 2002. Population Projections for Mexico. 2000-2050.
Table 46. Mexico:
coverage of health
services
Coverage of health services
Federative institution
2000
2010
∆2010-2000
Aguascalientes
55.4%
78.5%
23.1%
Baja California
51.2%
69.1%
17.9%
Baja California Sur
58.9%
75.6%
16.7%
Campeche
38.4%
76.8%
38.4%
Coahuila
69.7%
76.5%
6.8%
Colima
45.6%
81.3%
35.6%
➜
➜
118
119
➜
➜
Chiapas
17.6%
56.8%
39.2%
Tlaxcala
29.8%
61.6%
31.8%
Chihuahua
56.2%
73.1%
16.9%
Veracruz
30.7%
58.7%
28.0%
Federal District
51.3%
63.8%
12.5%
Yucatán
45.1%
74.9%
29.8%
Durango
48.9%
68.2%
19.3%
Zacatecas
32.4%
68.5%
36.1%
Guanajuato
33.9%
69.7%
35.8%
National
40.1%
64.6%
24.4%
Guerrero
20.3%
53.3%
33.0%
Hidalgo
29.1%
65.3%
36.1%
Jalisco
44.3%
64.1%
19.8%
Mexico
39.7%
58.1%
18.4%
Michoacán
26.2%
54.2%
28.0%
Morelos
34.2%
63.2%
29.0%
Nayarit
40.5%
76.3%
35.8%
Nuevo León
65.9%
77.1%
11.2%
Federative
institution
Oaxaca
22.6%
56.0%
33.4%
Puebla
24.9%
49.5%
Querétaro
45.4%
Quintana Roo
Source: INEGI, Population and Housing Census, ITER 2000 and 2010.
Table 47. Mexico:
evolution of the coverage
of basic services and
conditions in homes
ix) With regard to housing conditions,
an increase was seen in the number
of households with electricity,
Households with access to
electricity
People living in homes with
dirt floors
∆20102000
2000
2010
∆20102000
98.7%
1.5%
3.5%
1.7%
88.7%
95.9%
7.2%
4.9%
Baja California Sur
92.9%
94.0%
1.1%
21.4%
Campeche
90.5%
95.8%
73.0%
35.6%
Coahuila
96.9%
53.0%
74.9%
21.9%
Colima
Sonora
56.4%
74.0%
17.6%
Tabasco
29.4%
73.5%
Tamaulipas
51.2%
73.4%
2000
2010
Aguascalientes
97.2%
24.5%
Baja California
73.9%
28.5%
46.2%
67.6%
San Luis Potosí
37.4%
Sinaloa
the number of homes with a dirt
floor was reduced and coverage of
drainage and drinking water rose.
Households with access to
drainage
2000
2010
-1.9%
95.0%
98.1%
3.3%
-1.7%
81.8%
10.8%
5.7%
-5.1%
5.3%
14.4%
4.7%
97.5%
0.5%
4.9%
91.4%
97.1%
5.7%
Chiapas
84.7%
94.5%
44.1%
Chihuahua
90.9%
22.2%
Federal District
97.8%
∆20102000
Households with access to
drinking water
∆20102000
2000
2010
3.1%
96.7%
97.8%
1.0%
92.9%
11.1%
89.3%
94.1%
4.8%
80.5%
93.3%
12.8%
87.0%
87.4%
0.3%
-9.8%
63.8%
85.5%
21.7%
80.2%
84.8%
4.6%
1.6%
-3.3%
83.5%
95.1%
11.6%
93.5%
96.4%
2.9%
11.9%
4.5%
-7.5%
93.3%
98.3%
5.0%
94.0%
96.8%
2.8%
9.8%
38.5%
14.7%
-23.8%
62.3%
83.3%
21.0%
68.0%
73.5%
5.4%
93.1%
2.2%
6.6%
3.2%
-3.5%
85.2%
92.8%
7.6%
92.1%
94.4%
2.3%
96.6%
-1.2%
1.9%
1.0%
-0.9%
98.2%
98.9%
0.7%
97.0%
96.9%
-0.1%
➜
➜
120
121
➜
➜
Durango
92.4%
94.3%
1.8%
12.8%
6.3%
-6.5%
73.5%
88.5%
15.0%
89.9%
92.5%
2.6%
Zacatecas
94.9%
97.3%
2.4%
8.9%
3.4%
-5.5%
70.2%
89.1%
18.8%
83.5%
91.4%
7.8%
Guanajuato
95.4%
97.5%
2.1%
10.7%
4.1%
-6.6%
76.2%
90.5%
14.3%
88.2%
91.6%
3.4%
National
92.9%
96.2%
3.3%
14.1%
6.3%
-7.9%
77.7%
90.1%
12.4%
84.0%
87.9%
3.9%
Guerrero
88.2%
94.6%
6.4%
36.9%
18.4%
-18.6%
53.5%
76.5%
23.0%
59.8%
61.6%
1.8%
Hidalgo
91.3%
95.8%
4.5%
18.2%
7.1%
-11.1%
65.8%
85.3%
19.5%
79.6%
86.8%
7.2%
Jalisco
96.1%
97.2%
1.1%
7.3%
3.0%
-4.2%
91.7%
97.3%
5.6%
89.2%
94.1%
4.9%
Mexico
93.3%
97.6%
4.3%
7.1%
3.8%
-3.4%
86.4%
94.2%
7.9%
89.9%
91.8%
1.9%
Michoacán
94.1%
96.5%
2.4%
18.6%
10.2%
-8.3%
74.7%
88.5%
13.8%
82.7%
87.7%
5.0%
Morelos
94.1%
97.0%
2.9%
13.9%
7.2%
-6.7%
84.9%
95.1%
10.1%
86.0%
87.2%
1.2%
Nayarit
94.1%
95.6%
1.5%
12.1%
4.0%
-8.1%
80.2%
94.0%
13.8%
84.7%
88.1%
3.4%
Nuevo León
97.1%
96.8%
-0.3%
3.8%
2.0%
-1.8%
90.7%
95.7%
5.0%
93.4%
95.4%
1.9%
Oaxaca
86.8%
93.6%
6.9%
39.7%
18.7%
-21.0%
45.6%
70.8%
25.2%
65.5%
69.5%
Puebla
91.8%
96.6%
4.8%
22.7%
9.5%
-13.2%
65.6%
87.0%
21.4%
77.3%
Querétaro
92.9%
96.7%
3.8%
9.9%
3.7%
-6.1%
75.7%
90.9%
15.2%
Quintana Roo
93.8%
94.5%
0.7%
10.6%
3.7%
-6.9%
83.7%
92.8%
San Luis Potosí
87.8%
94.6%
6.7%
22.1%
8.7%
-13.4%
62.1%
Sinaloa
95.4%
97.7%
2.3%
14.2%
6.1%
-8.0%
Sonora
94.7%
96.0%
1.4%
12.8%
5.3%
Tabasco
93.1%
97.0%
3.9%
13.1%
Tamaulipas
93.6%
93.7%
0.1%
Tlaxcala
96.2%
97.9%
Veracruz
88.7%
Yucatán
94.6%
Source: INEGI, Population and Housing Census, ITER 2000 and 2010.
x) In terms of levels of inequality, the
country managed to reduce its Gini
coefficient from 0.546 to 0.506
between 2000 and 2008, although
in some federative institutions an
Table 48. Mexico:
evolution of the Gini
coefficient, 2000-2008
Federative institution
2000
2008
∆2000-2008
Yucatán
0.590
0.487
-0.103
4.0%
Quintana Roo
0.571
0.502
-0.069
83.4%
6.0%
Oaxaca
0.565
0.508
-0.057
88.2%
91.4%
3.3%
Morelos
0.561
0.478
-0.083
9.0%
90.0%
89.7%
-0.4%
Veracruz
0.558
0.495
-0.063
80.6%
18.5%
76.2%
82.8%
6.6%
Puebla
0.554
0.476
-0.078
74.3%
91.2%
16.9%
84.9%
89.7%
4.8%
Guerrero
0.549
0.539
-0.010
-7.5%
79.1%
89.5%
10.4%
91.5%
93.8%
2.3%
San Luis Potosí
0.545
0.503
-0.042
6.4%
-6.7%
85.3%
95.1%
9.8%
69.2%
73.4%
4.2%
Chiapas
0.542
0.557
0.015
9.1%
3.3%
-5.7%
74.4%
86.9%
12.4%
90.4%
93.7%
3.3%
Hidalgo
0.531
0.491
-0.040
1.8%
9.4%
3.9%
-5.6%
82.1%
94.2%
12.1%
90.2%
95.3%
5.1%
Querétaro
0.529
0.504
-0.025
95.3%
6.6%
26.5%
11.7%
-14.9%
67.8%
83.8%
16.0%
66.1%
76.0%
10.0%
Guanajuato
0.525
0.443
-0.082
96.4%
1.8%
5.9%
2.8%
-3.1%
58.4%
79.6%
21.2%
89.5%
93.6%
4.1%
Zacatecas
0.523
0.510
-0.013
➜
122
increase was seen, such as in the cases
of Chiapas, Federal District, Sinaloa,
Durango, Nuevo León, Chihuahua,
Aguascalientes and Baja California.
➜
123
6.3. The impact of decentralised
expenditure and its repercussion on
welfare levels
➜
0.523
0.465
-0.058
Campeche
0.520
0.523
0.003
Tabasco
0.520
0.526
0.006
Tlaxcala
0.518
0.425
-0.093
Coahuila
0.511
0.472
-0.039
Colima
0.507
0.450
-0.057
Federal District
0.505
0.511
0.006
Michoacán
0.502
0.482
-0.020
Tamaulipas
0.500
0.483
-0.017
Mexico
0.498
0.426
-0.072
Sonora
0.495
0.471
-0.024
Nayarit
0.493
0.478
-0.015
Baja California Sur
0.493
0.488
-0.005
Sinaloa
0.481
0.485
0.004
Durango
0.478
0.495
0.017
Nuevo León
0.469
0.490
0.021
Chihuahua
0.465
0.531
0.066
Aguascalientes
0.454
0.509
0.055
Baja California
0.446
0.451
0.005
National
0.546
0.506
-0.040
Source: Inequality maps. Multidimensional poverty.
124
In order to evaluate the way in which
decentralised expenditure has affected
basic services, an exercise was carried
out: the provision of decentralised health
services was correlated with the reduction
of infant mortality, as was the effect that
decentralised expenditure has had on
education, and in this way measuring one
of the principal Millennium Development
Goals in this area, consisting of the
population that begins primary education
completing the whole cycle. In both
cases, we can state that the results are
positive. In the first, Argentina and
Mexico reduced infant mortality to 15%
and 16% respectively; Brazil, despite its
success, remained at 20%. In this regard,
decentralised spending appears to have
been a key element in achieving this
progress, as can be seen in the following
chart.
33
Chart 11. Impact of
decentralisation on infant
mortality
1995
31
Infant mortality ratio (per 1,000 inhabitants)
Jalisco
29
1995
27
25
1995
23
21
2006
19
17
2006
15
2006
Source: INEGI, the Brazilian
Institute of Geography and
Statistics (IBGE), the Argentinean
Institute of Statistics and
Censuses (INDEC), World Bank.
13
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
11.0%
12.0%
13.0%
Average share of decentralised expenditure
Argentina
Brazil
Mexico
125
Decentralised education, in turn, has been
highly successful in terms of achieving
the objective of ensuring that most of the
students who begin primary education
complete the entire course. In Argentina
and Chile this goal has been accomplished
by reaching 95% – a percentage which in
Mexico lies at 92% and in Colombia, at
88%. The only case in which acceptable
levels have not been reached is in Brazil.
A final indicator for measuring the
effectiveness of decentralised expenditure
on welfare levels was analysed using the
Gini coefficient.16 The result is also
positive, showing a reduction in all cases,
0.65
Chart 13. Spending and
inequality, an approach
based on the Gini
coefficient
0.63
0.59
Chart 12. Students who
reach the final grade of
primary education
110
Gini coefficient
Percentage of the total number of students who reach the final grade of
primary education
0.61
100
0.57
0.55
90
0.53
80
0.51
70
0.49
7.0%
8.0%
60
50
9.0%
10.0%
11.0%
12.0%
13.0%
14.0%
Average share of decentralised expenditure
Source: ECLAC.
1999
2000
Argentina
2001
Brazil
2002
2003
Mexico
2004
Colombia
2005
2006
2007
Argentina
Brazil
Mexico
2008
Chile
Source: UNESCO - Institute for
Statistics (IEU).
which also demonstrates that wider
decentralisation does indeed generate a
process of greater income distribution.
16 The Gini coefficient is a statistical measure for analysing
the distribution of income without using average income as a reference parameter; it is a measure of income concentration. This index takes values from 0 to 1;
the higher it is (closer to 1), the greater inequality exists
in income distribution. Due to its simplicity of calculation and interpretation, it is one of the most used indicators of inequality for measuring and comparing
inequality among populations (CONEVAL).
126
127
7. Latin America: an analysis of the impact of
decentralised expenditure on building productive
capacities
Processes of decentralisation not only lead
to the development of fiscal capacities in
the countries concerned, but also, by
strengthening democratic processes in the
regions, they encourage initiatives among
all the economic stakeholders that were
previously concentrated in the large Latin
American cities. Moreover, these processes
tend to generate a territorial distribution
of companies that contribute to local
development. Viewed from this
perspective, decentralisation can be
successful as long as it manages to boost
the structural complexity of the
productive area. Otherwise, the forces of
local development will be dependent on
transfers from national or sub-national
governments which generate a certain
level of spending and employment in the
communities. In this section we explore
the way in which this structurally
complex process has performed in Brazil
and Mexico, looking at some basic
relationships and measuring what this
change has meant for the territory.
Ramón Cuadrado Roura (2002),
Alburquerque (2004), the Organisation
for Economic Cooperation and
Development (2005), the World Bank
(2003), Andrés Rodríguez Pose (2008)
and Vázquez Barquero (2010). All of
them refer to the conditions required for
these processes to be successful. From
this point of view, decentralisation
processes require part of the central
government’s development work to be
reassigned to local authorities, which will
lead to the promotion of business
policies. In Latin America, these
processes have been linked to two
fundamental concepts: firstly, attracting
cores of foreign investment to form
business clusters and secondly, in a
complementary way, encouraging micro
and small enterprises to join in the
process of supplying large businesses in
order to create production networks and
value chains in each of the Latin
American regions. Thus, policies for
supporting micro and small businesses
should fall within the framework of local
development strategies and even
territorial development strategies.
7.1. Latin America: local
development as a starting point
Local development must identify where
the productive units are, but at the same
time it has a broader scope relating to
local public management, public-private
cooperation and creating an environment
that ensures real opportunities for
business development. Local development
is not simply a financial matter;
businesses do not operate in a vacuum
or in a census, but are instead part of a
set of productive linkages with suppliers
and clients (with backward or forward
One of the assumptions of the theory
behind decentralisation is that it
contributes towards generating
endogenous processes of local economic
growth. This is the fundamental idea
expressed in the theory of local economic
development, which has been explored
by many economists, among others
Blakely and Bradshaw (2002), Juan
128
129
productive linkages), and it is therefore
necessary to understand the character of
these networks, of these productive chains
and the degree to which the territory
helps to facilitate the incorporation of
elements that boost productive efficiency
in competitiveness. In other words, a
company does not compete alone: it is
the network of backward and forward
productive linkages, as well as the
character and provision of territorial
elements (not only economic and
financial, but also social and cultural)
that help to facilitate access to strategic
information. Therefore, it cannot be
treated as a specific sector if we want to
go beyond an approach based on projects
carried out by isolated units or nongovernmental development organisations.
To discuss development, we must leave
macro-balances aside and start talking
about the territory as a stakeholder, as an
asset. Consequently, the territory must be
included in discussions on development
and this dialogue must also involve all the
stakeholders, the environment, their
organisations and strategies. In the last
two decades, the governments of Latin
America have gradually shifted the focus
from policies favouring macro-economic
stability towards one which also includes
a development strategy in line with the
complexity of the national productive
structure in the different territories in
these countries. A crucial part of
development is the introduction of socioinstitutional and managerial productive
innovations throughout the entire
business fabric, which is composed mainly
of micro and small enterprises (currently
130
more than 90% of businesses are micro
and small). Thus, the idea behind this
system of development is to take the local
entrepreneurial culture into account,
which stimulates the creation of new
businesses and channels the population’s
entrepreneurial spirit in the different
territories in the region.
There is an asymmetrical situation
between micro and small businesses with
regard to their importance in terms of
number, people, employment and income;
importance therefore from an economic
and social point of view, and due to the
unequal treatment they receive compared
with large and medium-sized businesses.
In order to equalise competitiveness
conditions, it is necessary to defend
policies that support micro and small
businesses, trying to reduce the difficulties
these face and even establishing positive
discrimination in favour of these micro
and small businesses, as already occurs
in many countries, among them those in
the European Union, the United States
and all the countries in East Asia. Positive
discrimination consists of giving priority
to small local suppliers, trying to ensure
that they meet standards of quality and
competitiveness. This is an example of
active policy; just as has occurred with
employment, it is necessary to adopt a
proactive position and apply positive
discrimination in favour of micro and
small businesses.
This applies both for reasons of social
cohesion and economic development.
However, it is common to find that
support for agricultural activity, for
example, is usually based on reasons
of social investment, leaving these
activities to a certain extent held captive
to an aid dynamic or very closely
tied to international cooperation. The
countryside should be seen as something
that must be helped by cooperation.
On the contrary, national development
strategies should incorporate what is
today a very common element in northern
countries, where regional and local
governments have created policies to
support micro and small businesses for
economic and social cohesion reasons.
These types of strategies, or proactive
policies, can be justified for reasons other
than generating employment or income
for much of the population because they
are a fundamental tool for strengthening
the socioeconomic, productive and
institutional fabric of the different local
spheres.
Faced with the problem of development
compared with under-development,
or articulation compared with
disarticulation, what are needed are
development proposals aimed at
strengthening coordination between the
socio-institutional, economic and social
networks in the different local spheres.
Likewise, reinforcing the local productive
systems formed by micro and small
businesses will make the entire national
economic system less vulnerable to any
possible external shock or unexpected
macro-economic change. The strong
presence of a network of micro and small
businesses also helps to better distribute
economic power in society and acts
as a channel for the local population’s
entrepreneurial spirit. In addition,
this presence throughout the territory
facilitates learning and innovation,
helping to increase the involvement of
local innovation in the different territorial
spheres.
Micro and small businesses form national
capital, domestic capital, whose owners
live and work in different territorial
areas – something we could consider as
local capital and which is the basis for
establishing a more balanced domestic
economic and social development
project. A very high percentage of the
purchases made by these businesses
correspond to local or domestic products,
which makes these micro and small
businesses very important from the
point of view of increasing the level
of domestic productive coordination.
Recent history shows us that most
industrialised countries have not based
their development strategies exclusively
on foreign investment; this would not
be sustainable without a solid base of
micro, small and medium businesses that
participate in the learning and innovation
processes of the different territorial
spheres.
The ultimate aim of local development
strategies should be to strengthen the
local productive and business sector
so that it can collaborate in increasing
employment and income and, along with
it, the standard and quality of life of the
local population. The vast majority of
Latin America’s productive activity is
generated in local settings by micro and
small businesses, which demonstrates the
131
size and relevance of local production and
the importance of policies that promote
these types of businesses. This promotion
cannot be applied solely through aid
programmes and policies, nor can we
assume that an international approach
alone will lead to modernisation, i.e., to
fill the gaps that national development
policies have expected the market to
cover.
In Latin America, establishments
considered to be formal micro and small
businesses make up most of the region’s
business sector (around 96.2% of the
total) and they employ almost half of the
working population. These enterprises
are found throughout the territory,
representing most of the business fabric,
and it is these micro and small businesses
that are facing the demands of structural
changes.
Despite this, these businesses are not
protected by any development policy;
they are not eligible for strategic
development plans and are instead
treated as a social investment fund for
international cooperation; they are,
however, eligible for aid policies launched
by governments and international
organisations.
There are some exceptions to this last
statement; in Brazil, for example, some
projects have managed to involve state
and international institutions. This
situation reveals that it is important to
Employment
Sales
Exports
Argentina
43.6
41.0
8.4
Brazil
42.,6
25.9
12.5
Chile
21.2
18.3
3.7
Colombia
32.0
17.1
nd
Ecuador
24.0
15.9
< 2.0 %
El Salvador
27.7
34.3
< 2.0 %
Mexico
30.8
26.0
< 2.0 %
Peru
11.9
27.0
< 2.0 %
Uruguay
47.0
nd
< 2.0 %
Source: ECLAC (2010). The situation of SMEs in Latin America.
132
Table 49. Latin America:
contribution of SMEs
(% of total)
continue supporting those processes
being developed in favour of micro and
small businesses, and to establish them
as priorities. Their importance, in terms
of generating employment and income,
in addition to territorial coverage, could
complement development policies that
exclusively emphasize macro-economic
stability which, despite being a necessary
condition, is not sufficient in itself if we
consider figures on income, employment
and territorial presence. The goal of
eradicating poverty should be addressed
with a more consistent strategy and,
therefore, a sound basis for growth
must be established in a similar way
to what has been done in developed
countries. It is necessary to combine
the institutional strengthening of local
governments, the momentum of citizen
participation in cooperation between
public and private sectors, the progress of
democracy and the promotion of micro,
small and medium-sized enterprises.
This means that we must move towards
territorial development of democracy,
governability, sustainable growth, and
everything that concerns development.
Local development must not be seen as
a lesser version of development; on the
contrary, local development is the basis of
all development.
Local development should not only take
macro-economic aggregates into account.
The most important thing is to consider
the population and the environment they
live in taking a comprehensive look at the
differences that characterise the
stakeholders in each territorial unit and at
their alliances and institutional
relationships. An active territorial policy
for business development should be
developed, but bearing in mind the
limitations of centralised bodies that work
in charitable cooperation and are run by
personnel who are not specialised in the
matter.
An international context does not
guarantee the sufficient spread of
the technical progress made by all
these micro, small and medium-sized
enterprises in the local productive system,
as their activity is not directly linked to
exportation. Technological progress will
have an effect on those businesses that
are interlinked with productive systems in
the globalised world, but this will hardly
be felt in micro, small and medium-sized
enterprises, which are estimated to have
very limited linkages with international
markets.
The effects of spreading innovation,
which also involve the socio-institutional
area, do not come from integration
into external markets or from foreign
investment. An international approach
has a limited influence on the net creation
of skilled jobs and does not guarantee the
crucial aspects needed for introducing
innovation. Productive innovations do
not only mean technology –whether
in productive processes or products,
new equipment, new facilities and new
materials–, they also include innovations
in management, in organisation, and
those that increase flexibility, productive
efficiency, the capacities of human
resources according to the needs of the
different local productive systems, access
133
to information networks and relationships
with suppliers. The majority presence of micro and
small enterprises in all countries calls
for huge efforts to be made in terms of
productive and entrepreneurial innovation
– a matter that is inefficiently handled
by general policies implemented by
central governments, which lack the
flexibility needed to be able to adapt to
the individual needs of each territory.
Without a specific development policy
for the different local productive systems
it is not possible to properly modernise
businesses, or support micro and small
enterprises. These policies must be
accompanied by instruments, including
those that incorporate the use of new
technologies, for example, territorial
information systems or the support
of geographical information and georeferenced systems. While development
analyses have typically had a macroeconomic focus, in the phase of technostructural transition we currently find
ourselves in, it is important to know
how to successfully break into the
micro area and introduce productive
and commercial innovations across the
board. These range from technological
management capacity to labour relations
suitable for the horizontal structure
needed for disseminating information, as
well as integration into networks. This
is essential if innovation is to reach the
basic productive and business fabric at the
micro level. Innovative environments for
business promotion must be established
in each territory and these should have
a strategy and incorporate socio-cultural
134
changes and values that foster mid-level
cooperation that will effectively influence
the micro level.
Ultimately it comes down to
demonstrating that competitiveness and
development depend on creating the right
territorial conditions to encourage the
introduction of innovation at a micro
level; this should be done by fostering
social capital and coordinating publicprivate stakeholders from within the
territory. In Latin America this is not an
established approach to development;
governments have argued that it was not
necessary to have an industrial policy,
as this was covered by the market.
But micro, small and medium-sized
enterprises cannot be asked to do this, as
it is something that must be implemented
through policies on development and
employment. In this regard, cooperation
must go much deeper if we truly want
to move away from aid-based solutions
to building an agenda that leads to
genuine development. The importance
we give to micro, meso and territorial
levels is reflected in the importance that
this attention to the micro level receives
in our local development agendas. We
must understand the adaptations required
on a meso-economic level to ensure the
introduction of technological, social
and management innovations into the
productive base and the business sector of
each territorial area. Placing the emphasis
on development must involve the territory
and social capital. Because environmental
issues –which are not unrelated to
building the capacities of human
resources which, in turn, are closely
linked to labour markets with specific
employment opportunities that differ from
one place to another– can only be tackled
on a territorial level. Innovation is also
related to the problems in each territory’s
productive network, and resolving these
problems call for a territorial vision.
The main goal of local development is
coordination between the productive base
and the local business sector, something
which can be seen in most micro and
small businesses. Thus, when helping to
build favourable territorial environments
what are needed are social, cultural and
institutional changes and adaptations.
The construction of social capital, of
rules, agreements and forms of relating
to each other enables coexistence to be
organised within a territory. These aspects
are fundamental for development which,
occasionally, takes only quantitative
indicators into account. Development
must be focused by encouraging all
the stakeholders to work together
towards incorporating the territory,
conventional economic reflection, the
basic infrastructures for development
(adapting these for development in the
territory), business development services
(both financial and real), productive
services, and the territorial promotion
of micro-enterprises, SMEs and
cooperatives. Essentially, the idea is that
central governments should not hold the
monopoly on development policy and
that this policy can become part of the
development strategy in the cooperation
agenda. Local development, human
capital, education, nutrition, health,
and women’s rights are not just social
policies, they are development policies. If
we accept that human capital is a crucial
element in the information era, then we
should consider it as an essential preinvestment for development. It is not
just an element of social policies: it is a
central asset necessary for undertaking
any development approach.
Local development has a priority: internal
productive and social coordination
to make better use of endogenous
resources and external opportunities.
Local development does not only involve
using endogenous resources, but is also
the capacity to endogenise the way we
take advantage of existing external
opportunities. To do this, a strong
economic base is needed as well as a
strategy agreed with the stakeholders
capable of carrying it out. To strengthen
negotiating power it is important to
investigate the possibility of, for example,
building local networks of suppliers or
contractors, which will help to form
relationships with large companies –
which are rarely interested in unstable or
uncertain contexts. In any case, only by
strengthening the local economic base
can the segments of international markets
be sustained in the long term. There is
a link between the domestic productive
system and environmental sustainability
and also macro-economic stability, but
the action agenda also involves attending
to basic needs, and selecting suitable
technologies for this priority attention,
which is in turn related to building the
capacities of human resources and the
local labour market. With this approach, it
is possible to start building an economic
135
base by attending to local needs that can
be covered by promoting businesses that
address this type of need, i.e., by working
on productive coordination right from
the start, which requires a meso-level
effort of creative interaction between
public and private stakeholders. Thus,
foreign investment can be improved if it
is supported by integration platforms, as
demonstrated throughout the history of
development.
Sometimes, local development is
confused with municipal development.
However, local business systems do not
stop at municipal limits and, on most
occasions, the coherence of the productive
linkage itself exceeds the boundaries of
the municipality. Identifying the geoeconomic units of intervention in local
productive systems is an important
step in designing a local development
policy, differentiating these units from
political-administrative boundaries in
the provincial, regional or national area.
It is also common for local productive
systems to be constrained by politicaladministrative boundaries, which is
a serious obstacle for local economic
development because it hides information
about the commercial relationships that
exist between different communities.
This forces a greater emphasis to be
placed on creating territorial information
systems for development, as sectorial or
other statistics are either inappropriate or
insufficient.
Micro and small businesses, although they
are not organised in censuses or cadastres,
are grouped into networks within a
136
territory. This indicates their importance;
they form significant territorial groups,
mostly in commercial and service
activities, but also in manufacturing,
in productive chains or clusters.
Nevertheless, there is no information
available on this subject. This requires an
on-the-spot assessment and knowledge
of the partners so that this information
is accessible to them, i.e., identify their
territorial location, the location of their
productive linkage and use of territorial
or geo-referenced information systems.
This has become essential today, as
competitiveness does not depend on
isolated businesses but on networks
of linkages and on the characteristics
of the territorial environment they are
based in. This enables an innovationfriendly environment to be built.
Likewise, businesses are affected by
the level of quality planning in their
urban, environmental and territorial
surroundings, taking into account
territorial productive systems projects and
strategies to resolve the issues of moving
people or goods: which, in economic
terms, are known as transaction costs.
Improving the surrounding infrastructure
and quality of urban services is
fundamental for productivity and
competitiveness. This involves addressing
fairly obvious issues, but an integrated
theoretical approach is fairly new for
economists and in discussions about
development. These are the first things
to consider when launching development
cooperation actions. An isolated business
plan has no future. It is necessary for the
territory to introduce an active policy,
agreed with stakeholders, in order to
support business development innovations
for SMEs in the different territories. This
should, therefore, be a territorial policy
that enables cooperation to be viewed
in this manner. Interventions by nongovernmental organisations through
projects should be agreed and must fit
within a development strategy that takes
into account the different production
profiles in the various territories, and
the different profiles of the stakeholders
involved, of their social capital, their
history and their culture. Likewise,
capacity-building actions for human
resources must be adapted to the existing
needs in the different local productive
systems and to the underlying demand for
innovation. The importance of addressing
environmental characteristics brings with
it a need for flexible territorial design to
seek public-private cooperation in the
different territorial areas and, therefore,
find the right productive development
policy.
Micro and small and medium-sized
enterprises do not always have a clear
vision of the strategic data that must
be considered when making structural
changes, which reveals that in terms of
demand there are no indications that the
underlying innovation exists to address
these changes. Furthermore, services for
dealing with new situations have not been
set up in the territories.
So no market has been built, and it is
therefore necessary to mediate in order
to build these markets, i.e., based on
the underlying demand for innovation
and by establishing, introducing, using
and guiding the promotion instruments
that already exist. Each territory must
create the different strategic service
environments and markets for supporting
micro-enterprises’ and SMEs’ production,
which requires public administrators
and local development agents to adopt
an active policy, in order to help
identify the weaknesses in the various
local productive systems and adapt the
appropriate supply of instruments for
productive and business promotion. An
analysis of international best practices
by municipalities to meet the demands of
the meso-economic level of introducing
innovations reveals an important level
of effectiveness and efficiency. This has
enabled significant progress to be made,
as we can see in our own countries.
When institutions have a greater capacity
for representation and legitimacy before
the electorate –and this is something
that occurs on a local scale and through
decentralised cooperation–, they can
then become agents for the social
and cultural integration of territorial
communities with a greater capacity for
adapting to variable contexts; this is
an essential advantage when trying to
build social capital. Decentralisation in
Latin America is usually limited to fiscal
decentralisation, or to capacity-building
courses so that those who are going to
manage from local levels do so correctly
and do not alter the vertical fiscal
balance or spend more than they should.
In the case of Europe, decentralisation
is based on the transfer of power and
resources, which has freed the potential
137
for generating more growth, development
and employment.
Constructing collaboration networks
among territorial stakeholders and
cooperation between different levels of
territorial administration enables the
progress of democracy, decentralisation,
productive business innovation,
employment, and social and cultural
integration. Fiscal decentralisation must
include the new and decisive functions
of promoting productive and business
development in the territorial area and,
considering the restriction on applying
free trade policies in southern countries,
it has to be part of a cooperation
strategy. Productive development
and business innovations are not the
exclusive domain of the public sector,
instead these components should be
implemented through public-private
cooperation; learning the lesson that
new forms of local public administration
should focus on creating opportunities
for collaboration with the private sector
and, therefore, move towards methods
of shared management, although, until
now, there has been no agreement
on how to achieve this. This hampers
the design of a strategy for publicprivate cooperation. In cooperation,
the public sector is the catalyst, the
facilitator that provides democratic
spaces, organises, and gathers everyone
together, but it is the entire group of
stakeholders that create development.
Institutional coordination in the different
territorial levels of administration is
important. This means that the issue of
sharing management with the private
138
sector forms part of a strategy for
promoting micro and small businesses.
This shared management results in
development research and administrative
modernisation. New local public
administration should be introduced,
overcoming centralist approaches and
providing territorial entities promoting
productive development with the capacity
to carry out their work effectively and
permanently.
Micro-enterprises represent a huge
majority of the existing businesses
in the region and they make up the
productive and entrepreneurial sectors
of the region’s different countries.
They are important from the point of
view of employment and the income
of much of the population, which
makes them an intelligent policy for
economic development or development
cooperation policy in any country.
Without questioning the efforts made
towards macro-economic stability in the
promotion of exportations, this concept
must be accompanied by more consistent
and not only aid-based approaches to
the problem of poverty. It is necessary to
incorporate a micro and small business
strategy into this approach to genuine
local development as suggested: not as
a secondary agenda, but as the most
important challenge.
7.2. Latin America: decentralisation hypothesis was that the increase in
spending was positively correlated with
and development of local
the creation of new businesses (∂EU), with
productive capacities
Local development in recent decades
has been strengthened by business
development; in the cases of Brazil
and Mexico, the different regions of
both countries have shown consistent
expansion according to the information
available in economic censuses. The
example of Brazil, despite being more
robust, tends to be more concentrated in
large urban zones; the difference between
the number of businesses in São Paulo
and Amapá is 210 times greater, while in
Mexico the number of businesses in the
State of Mexico is 20 times greater than
in Baja California Sur. To this we must
add that the growth dynamic is higher in
Mexico than in Brazil, even though the
number of businesses in Brazil is almost
double that of Mexico, as can be seen in
tables 50 and 51.
In an effort to analyse the impact
that decentralisation has had on the
development of new productive capacities
in Brazil and Mexico, a correlation
exercise was carried out between the
increase in decentralised expenditure and
the main census variables on economic
unit growth, the rise of added value,
increases in employment and the rise in
formation of capital. The exercise was
carried out in the case of Brazil with
census data for 2002 and 2006, and with
data corresponding to the increase in
decentralised expenditure for the same
period, by first-level national government
(the twenty-seven federal states). The
an increase in production (∂EU) and with
an increase in employment (∂E); thus,
what was being tested was whether there
was a positive elasticity, as indicated by
the following formulas:
∂EU
∂DE
>0
∂AV
∂DE
>0
∂E
∂DE
>0
The results obtained were positive in the
case of a stimulus for the creation of new
businesses in the federative institutions
with the lowest gross domestic product. In
this regard, it could be argued that
decentralised expenditure has stimulated
economic activity and, with this, it has
managed to generate a greater number of
businesses that, according to the
economic census, are small and medium
enterprises. The results, in this case, were
negative for Goiás and Santa Catarina,
which are the entities with the highest
level of productive value and in which
decentralised expenditure did not grow.
The effect on the amount of added value
generated in real terms was greater than
in the case of entrepreneurship, which
could suggest a growth in productivity,
due to decentralisation.
As regards employment, there seems to
have been less impact: the elasticity was
lower on average, which could indicate
that the processes are less intensive in
139
Entity
2000
2006
Variation %
1,339,138
1,854,518
5.58%
Minas Gerais
527,374
690,664
4.60%
Rio Grande do Sul
468,046
621,926
4.85%
Paraná
337,313
484,942
6.24%
Rio de Janeiro
334,397
439,549
4.66%
Santa Catarina
235,051
327,104
5.66%
Bahia
201,694
292,435
6.39%
Ceará
128,644
182,788
6.03%
Goiás
123,098
176,945
6.23%
Pernambuco
111,038
152,035
5.38%
Espírito Santo
84,355
116,611
5.55%
Mato Grosso
66,068
98,849
Federal District
68,492
Pará
São Paulo
Table 50. Brazil: subnational business
development (number of
businesses)
➜
Rondônia
27,155
37,126
5.35%
Sergipe
22,366
30,796
5.48%
Tocantins
21,352
27,985
4.61%
Acre
8,121
12,067
6.82%
Roraima
6,500
9,585
6.69%
Amapá
6,136
8,800
6.19%
4,454,179
6,144,178
5.51%
National total
Source: created by the author based on data from economic censuses, IBGE and the Treasury Secretariat.
Table 51. Mexico:
sub-national business
development (number of
businesses)
2003
2008
Variation %
Mexico
364,921
456,563
25.1
6.95%
Federal District
342,454
382,056
11.6
88,994
4.46%
Jalisco
214,623
264,361
23.2
51,062
78,770
7.49%
Veracruz
184,668
225,773
22.3
Maranhão
48,034
74,404
7.57%
Puebla
165,237
215,177
30.2
Mato Grosso do Sul
52,556
69,059
4.66%
Guanajuato
150,746
179,819
19.3
Paraíba
46,916
66,512
5.99%
Michoacán
141,426
176,186
24.6
Río Grande do Norte
44,549
64,334
6.32%
Oaxaca
107,075
144,372
34.8
Piauí
36,598
53,021
6.37%
Chiapas
93,814
129,863
38.4
Alagoas
32,186
42,867
4.89%
Nuevo León
110,148
129,427
17.5
Amazonas
25,940
41,492
8.14%
Guerrero
95,016
127,978
34.7
Tamaulipas
85,274
102,130
19.8
➜
➜
140
141
➜
79,185
89,248
12.7
Yucatán
62,799
85,597
36.3
Sonora
66,660
83,141
24.7
Hidalgo
62,521
81,570
30.5
Coahuila
66,456
80,880
21.7
Sinaloa
64,611
80,540
24.7
Baja California
61,807
80,368
30.0
Morelos
63,647
79,404
24.8
San Luis Potosí
63,762
79,211
24.2
Querétaro
42,491
56,345
32.6
Tabasco
44,186
52,616
19.1
Tlaxcala
38,241
49,337
29.0
Zacatecas
40,869
48,127
17.8
Durango
37,864
45,135
19.2
Aguascalientes
33,604
40,960
21.9
Nayarit
29,896
39,283
31.4
Quintana Roo
29,079
38,768
33.3
Campeche
22,900
29,980
30.9
Colima
20,438
26,046
27.4
Baja California Sur
National
Source: INEGI, economic censuses 2009.
142
16,905
22,784
34.8
3,005,157
3,724,019
23.9
employment of workforce, and this would
be a question to consider for public
policies on decentralised expenditure.
like Tabasco, Campeche and Veracruz,
which even recorded negative growth.
In the case of increasing productive
capacities, we can see that certain
federative institutions had a greater
impact, as is the case of Zacatecas, where
transfers of capital contributed to an
increase in the entity’s fixed assets.
In the case of Mexico, the effects of
decentralised expenditure in the 32
federative institutions were also positive
on business development in the federative
institutions with lower relative levels of
development, such as those in the south,
affecting petrol-producing areas such as
Tabasco.
As regards employment, the results are
equally positive, even exceeding those
observed in Brazil; this would seem to
indicate that there is a more intensive
growth process in workforce in Mexico,
which should also be taken into account
in decentralisation policies, as this could
have positive implications for
employment if suitable rules are
In terms of added value, growth was seen
in the federative institutions with lower
levels of economic development; however,
in this case, decentralised expenditure
does not seem to have a positive
correlation with petrol-producing entities
Chart 14. Brazil:
impact of decentralised
expenditure on the
generation of economic
units, 2000-2006
0.085
Amazonas
0.080
Average annual growth of economic units
Chihuahua
Maranhão
0.075
0.070
Acre
Mato Grosso
0.065
Goiás
Roraima
Bahia
Rio Grande do Norte
Paraná
0.060
Santa Catarina
Pernambuco
0.050
0.040
-0.02
Ceará
Paraíba
São Paulo
0.055
0.045
Source: created by the author
based on data from economic
censuses, IBGE and the Treasury
Secretariat.
Pará
Piauí
Amapá
Espírito Santo
Sergipe
Rondônia
Alagoas
Río Grande do Sul
Rio de Janeiro
Minas Gerais
Mato Grosso do Sul
Tocantins
Federal District
0
0.02
0.04
0.06
0.08
0.10
0.12
0.14
0.16
Variation in decentralised expenditure as a proportion of GDP
143
0.16
Chart 15. Brazil:
impact of decentralised
expenditure on the
generation of added
value, 2000-2006
Tocantins
Roraima
0.12
0.10
0.08
0.06
0.04
0.02
Acre
Federal District
Mato Grosso
Sergipe
Goiás
Espírito Santo
0
0.02
Rondônia
0.04
0.06
0.08
Piauí
0.10
0.12
0.14
0.16
Variation in decentralised expenditure as a proportion of GDP
0.105
Average annual growth of economic units
0.085
Rondônia
Roraima
Maranhão
Pará
Mato Grosso
Rio
Grande do Norte
Espírito Santo
Goiás
Mato Grosso do Sul
Bahia
Sergipe Alagoas Ceará
Paraná
Santa Catarina
0.065
Paraíba
Pernambuco
São Paulo
Rio Grande do Sul
0.025
Chart 17. Mexico:
impact of decentralised
expenditure on the
opening of economic
units, 2003-2008
Piauí
Acre
Minas Gerais
0.045
Source: created by the author
based on data from economic
censuses, IBGE and the Treasury
Secretariat.
Chart 16. Brazil:
impact of decentralised
expenditure on
the generation of
employment, 2000-2006
Amazonas
Tocantins
The results obtained from this exercise
constitute an initial attempt to evaluate
the effect of decentralised expenditure
on key variables of regional economy
in a country. Decentralisation can not
only increase standards of living for the
population –by decentralising public
services–, but can also affect business
development, generating with it a more
endogenous model of growth in local
economies. Nevertheless, it is always
Amapá
Pará
Ceará
Alagoas
Santa Catarina
Rio
Grande do Norte
Paraíba
São Paulo
Paraná
Amazonas
Minas Gerais
Mato Grosso do Sul
Bahia
Rio de Janeiro
Pernambuco
Rio Grande do Sul
0
-0.02
dangerous to make generalisations given
the variety of experiences, the changing
and prolonged history of decentralisation,
its multiple aims and the profound
differences in the conditions in which this
occurs. Here, the principal objective is
to assess the exogenous and endogenous
factors that affect the outlook of
economic growth on the local level.
7.3. Latin America: some
considerations
Maranhão
Rio de Janeiro
Federal District
0.005
In this regard, as highlighted in the book
Local Alternative (IDB 2009), the effects
can be divided into four main groups:
firstly, at a national or macro-scale level,
a regulatory framework is needed to
ensure lively competitiveness, efficient
markets and solid and stable macroeconomic conditions; secondly, and just
like the exogenous macro-economic
Chiapas
0.065
Yucatán
Baja California Sur
Average annual growth of economic units
Average annual growth of added value
0.14
established for its development.
Campeche
0.055
0.035
Nayarit
Baja
California
Puebla
Hidalgo
Tabasco
0.025
Oaxaca
Quintana Roo
Tlaxcala
Colima
Michoacán
Morelos
Mexico
Sonora
Jalisco
Veracruz
Aguascalientes
Coahuila
Tamaulipas
Guanajuato
Durango
Zacatecas
Nuevo León
San Luis Potosí
0.045
Guerrero
Querétaro
Sinaloa
Chihuahua
Federal District
-0.015
-0.02
Amapá
0
0.02
0.04
0.06
0.08
0.10
0.12
Variation in decentralised expenditure as a proportion of GDP
144
0.14
0.16
Source: created by the author
based on data from economic
censuses, IBGE and the Treasury
Secretariat.
Source: INEGI, Economic
Censuses 2004, Bank of Mexico.
0.015
-0.04
-0.03
-0.02
-0.01
0
0.01
0.02
0.03
0.04
0.05
0.06
0.07
Variation in decentralised expenditure as a proportion of GDP
145
Baja California Sur
Tabasco
0.10
Chiapas
Sonora
0.08
Querétaro
San Luis Potosí
Baja California
0.06
Colima
Nayarit
Coahuila
Zacatecas
Nuevo León
Mexico
Aguascalientes
Sinaloa
Guanajuato
Jalisco
Quintana Roo
Yucatán
Hidalgo
Morelos
Federal District
Chihuahua
Guerrero
Puebla
Michoacán
0.04
Tamaulipas
Durango
0.02
0
-0.02
-0.04
-0.06
-0.035
Chart 20. Mexico:
impact of decentralised
expenditure on
the generation of
employment, 2003-2008
Tlaxcala
Oaxaca
-0.025
-0.015
-0.005
0.005
0.015
0.025
0.035
0.045
0.055
0.065
Source: INEGI, Economic
Censuses 2004, Bank of Mexico.
Source: INEGI, Economic
Censuses 2004, Bank of Mexico.
0.11
Average annual growth of occupied personnel (percentage)
Average annual growth of added value (percentage)
0.12
Chart 18. Mexico:
impact of decentralised
expenditure on the
growth of added value,
2003-2008
Veracruz
Campeche
0.14
Baja California Sur
0.09
0.07
Hidalgo
Veracruz
0.05
Tabasco
0.03
Querétaro
Quintana Roo
Colima
Morelos
Chiapas
Oaxaca Tlaxcala
Michoacán
Sonora
Mexico
Zacatecas
Yucatán
San Luis Potosí
Jalisco
Guanajuato
Nuevo León
Sinaloa
Aguascalientes
Baja California
Tamaulipas
Federal District
Puebla
0.01
-0.02
Guerrero
Campeche
Chihuahua
-0.01
-0.04
Nayarit
0
Coahuila
Durango
0.02
0.04
0.06
Variation in decentralised expenditure as a proportion of GDP (base 2003)
Variation in decentralised expenditure as a proportion of GDP (base 2003)
Chart 19. Mexico:
impact of decentralised
expenditure on the
accumulation of capital,
2003-2008
Average annual growth of occupied personnel (percentage)
Zacatecas
0.38
0.28
Tamaulipas
Sinaloa
0.18
0.08
San Luis Potosí
Baja California
Tabasco
-0.02
-0.12
-0.035
Baja California Sur
Quintana Roo
Michoacán
Yucatán
Jalisco
Guerrero
-0.025
-0.015
-0.005
0.005
0.015
0.025
0.035
0.045
0.055
Variation in decentralised expenditure as a proportion of GDP (base 2003)
146
Tlaxcala
Campeche
Morelos
Chihuahua
Guanajuato
Colima
Puebla
Aguascalientes
Nuevo León
Durango Coahuila
Mexico
Querétaro
Federal District
Oaxaca
Sonora
Nayarit
Hidalgo
Chiapas
Veracruz
0.065
Source: INEGI, Economic
Censuses 2004, Bank of Mexico.
issues in a local area, it is important to
determine whether there is a dynamic
culture of innovation focused on boosting
the private business sector and civil
society; thirdly, and on a more local level,
it is necessary for a suitable physical
infrastructure to exist; and fourthly, as
well as requiring a suitable infrastructure,
the local level must also have social
cohesion, a favourable business climate,
coordinated programmes and instruments
and a strategy to be implemented by
teams that promote investment and
growth.
other elements depend on a more varied
and complex blend of governments,
shareholders, private businesses and
power relations, many of them on a subnational level and all of them subject
to or partially affected by the variable
balance of decentralisation.
There is a general consensus that national
and supranational levels of government
should be in charge of managing
regulatory frameworks, market operation
and macro-economic conditions. The
147
Conclusions: at the start of an agenda for
democratic strengthening
Even though a positive review of Latin
American decentralisation and its impact
on local development can be made, this
effort must be evaluated in the context of
the launch of different strategies in the
region from the 1980s onwards. On the
one hand, the northern region of Latin
America, with Mexico, began a process
of integration with the United States,
through the Free Trade Treaty, at the
same time as the process of integration
into Mercosur was initiated in the south.
However, none of these cases involved
a supra-regional planning process,
but instead national policies on public
finances were maintained. The common
denominator in all these experiences is a
strengthening of democracy, which has
provided a broad base for the demands
of decentralisation in all the regions in
Latin America.
In the 1980s, after the debt crisis, the
region began to discuss the process of
decentralisation, at the same time as many
local initiatives, in this context, started to
adopt decentralisation policies based on
diverse public financing schemes; in some
cases, such as Brazil and Bolivia, levels of
revenue and expenditure reached 40% of
the GDP, but in most cases the level was
between 20% and 30% –demonstrating
the limited room for manoeuvre for
driving decentralisation, added to the
institutional weakness making it difficult
for sub-national levels of government
to have their own sources of revenue.
Thus, in federal countries, the state
governments’ spending is situated within
a range of 8% to 12% of GDP and that of
the municipal governments within 1.9%
148
and 7.5% of GDP, which indicates the
sub-national governments’ narrow scope
of action.
The process of decentralisation has
become institutionalised by the definition
of transfer policies, which could be called
the institutional elements of concerted
decentralisation. The system has been
developing and is extremely broad, but it
has not been stimulated by any efforts to
grant the receiving bodies the power to
set their own taxes, which would allow
them to increase their revenue, as occurs,
for example, in the United States, where
there is a surcharge on sales tax in each
state. In Mexico this possibility exists,
but it has not been used by the federative
institutions, either due to (political)
precaution or a lack of local initiative.
Central governments’ compensatory
action, by creating support funds, has
inhibited local action.
The greatest success of the
decentralisation processes carried out by
the governments in the region has been
the transfer of basic public services to
sub-national levels of government, which
have been able to involve civil society in
the efforts to provide a basic social floor
for all. This effort measured against the
increase in decentralised expenditure
shows a positive trend. This first step
towards constructing a basic social floor
has contributed to a relative reduction in
inequality between the regions in Brazil,
Chile and Mexico; however, in Argentina
and Colombia, levels of inequality seem to
have remained the same. Finally, we
should mention that decentralisation
149
efforts have generated a process of
promoting local activity, by fostering the
construction of a new culture of
productive self-sufficiency in each
community. This has been reflected in a
rise in the number of businesses, higher
levels of local employment, greater
generation of added value and greater
capitalisation of companies, at least in the
cases of Brazil and Mexico.
We could deduce from all of this that the
decentralisation effort launched three
decades ago is an irreversible process,
because society has begun to organise
itself, triggering processes of local
development that did not exist a few
decades ago. The main problem with this
process is a lack of strategic planning
that would boost decentralisation efforts
and reinforce local initiatives, which
creates a state of confusion and obstructs
the efforts being made. The next step
in this task is to draw up a strategic
planning framework that reconciles
the different interests and prevents
excessive bureaucracy from blocking
the construction of a more decentralised
society.
The various reforms undertaken to
distribute powers should safeguard
and clearly establish which powers are
exclusive to each level of government
and which are shared and concurrent, as
well as detailing which level is responsible
for the remaining competences in order
to avoid duplicating efforts and leaving
possible gaps in any of these areas. In
addition, at the same time as delegating
administrative competences, sub-national
150
governments should also be granted the
real authority to make their own decisions
(political and fiscal decentralisation). On
the other hand, it is very unlikely that
political decentralisation alone will lead
to greater levels of citizen participation
in sub-national governments. This would
also require strengthening civic culture.
Promoting citizen participation and
creating suitable spaces and mechanisms
for participation is something that must
be more firmly incorporated into the
process of political decentralisation.
Higher levels of participation and control
by citizens and civil society could also
contribute to reducing political clientelism
and the local elite wielding control over
the political process (usually, in their own
interests). This is particularly relevant
in small sub-national governments with
strong socioeconomic inequality, and
where the elite hold great power.
Moreover, the virtuous link between
citizens and democracy has still not been
consolidated in Latin America.
Decentralisation can be seen as a
phenomenon, whether from the
point of view of a process or a state.
Furthermore, it is multidimensional
(fiscal, administrative and political) and
this requires a solid social commitment
as it establishes the relationships and
hierarchies of public power. This calls
for a sustained effort to build consensus,
especially between legislators and
representatives of civil society, as well as
sub-national governments themselves.
Without this support, the reforms
underpinning the decentralisation
process in Latin America may become
stalled in central ministries or blocked
by powerful interest groups. In Latin
America, problems of overlapping
competences still exist between
different levels of government and
many competences have not been duly
accompanied by the resources needed
to exercise these competences. With
regard to fiscal decentralisation, there
has been greater decentralisation in
spending than revenue. In particular,
unitary governments have little
power to collect their own taxes at
sub-national levels. This makes them
highly dependent on fiscal transfer
systems. One point in favour of all
this is that great progress has been
made with political decentralisation;
practically all of the countries in the
region are able to democratically select
their sub-national authorities through
representation systems at all territorial
levels. Nevertheless, processes of citizen
participation in public decision-making
are still incipient at best.
distribute political authority and the
capacity to govern among the different
levels of government. Latin America has
a long agenda for moving towards a more
participative decentralisation; reflection
together with the European Union on
this issue will enable a dialogue to be
initiated in the region which supports a
more suitable institutional framework
for decentralisation and permits the
establishment of better standards of living
in all regions with a view to increasing
social cohesion.
We must also bear in mind that the
changes decentralisation brings with it
are not free from conflict, given that
‘there may be a national elite that could
be increasing the dependence of local
regional governments to develop their
fiscal autonomy and therefore resisting
any change that may threaten their
position in the decision-making process.’
When the political world argues about
decentralisation, what is at stake are
precisely those institutional rules that
151
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02
Collection of Studies
into Local and
Regional Public Policies
on Social Cohesion
URB-AL III is a regional decentralised
cooperation programme run by the European
Commission, the aim of which is to contribute
towards increasing the level of social cohesion
in sub-national and regional groups in Latin
America.
Led by Diputació de Barcelona, the
URB-AL III Programme Orientation and
Coordination Office’s mission is to facilitate
the implementation of the programme by
providing technical assistance and support in
the different projects in order to help achieve
the programme’s objectives.