Decentralization is one of the most widespread and influential policy trends of the past
generation. In countries as different as Colombia, Egypt, India and the Ukraine, public
administrations are being decentralized in an attempt to make them more efficient, flexible and
responsive. And under the guises of subsidiarity, devolution and federalism, reform is firmly in
the foreground of policy discourse in rich countries too. Indeed one recent study (Manor 1999)
estimates that between 80% and 100% of the world‟s countries have experimented with one or
another form of decentralization during recent years.
One of the most radical and sincere of decentralization reformers is Bolivia, whose 1994
Popular Participation reforms devolved widespread political powers and resources to hundreds of
municipal governments that were created throughout the land. This experience has been widely
studied in the international literature, and cited as an example for reformers as far afield as
Bangladesh and Nepal. Bolivia is currently debating a further round of reforms that would
deepen decentralization. The proposed Framework Law of Autonomies and Decentralization is a
wide-ranging bill that would reform public administration by granting a degree of autonomy to
departmental, regional, municipal, and indigenous and rural governments.
What effects might this have on public investment patterns, government responsiveness,
government fiscal relations, the sustainability of public finances, and political accountability?
Acknowledging from the outset that it is impossible to analyze the effects of a law that has not
yet been promulgated, this paper instead examines its main provisions in light of the insights
provided by the international fiscal federalism literature, and extensive evidence on the effects of
Bolivia‟s 1994 reforms. My hope is that by submitting the law to the dual rigors of high-level
theory and detailed evidence, we can arrive at contingent predictions of its likely effects which,
if not precise, are at least reasonable baselines. These in turn allow us to make recommendations
for amendments and adjustments, not so much to the legal text itself as to the more complicated
and nuanced question of the implementation of reform.
The deeper aim of this paper is both to bring the proposed reforms to light for a wider
audience, and to inform and enrich the current debate within Bolivia on how autonomies can be
implemented in ways that strengthen democracy and give voice to the poor. The paper proceeds
as follows: section 2 reviews the main definitions of decentralization and autonomy employed by
the literature, and section 3 surveys the most important empirical results on the effects of
decentralization found in that literature. Section 4 presents the main provisions of the proposed
autonomies law, and section 5 does the same for the 1994 decentralization reform. Section 6
uses an original database to examine the empirical effects of decentralization on the universe of
Bolivian municipalities during the past 16 years, attempting to trace outcomes back to salient
features of the reform. Section 7 returns to the proposed law, analyzing it in light of this
evidence and insights on “international best practice” from the fiscal federalism literature.
Section 8 concludes.
2. What are Decentralization and Subnational Autonomy?
Before embarking on an analysis of Bolivia's recent reforms, let us briefly analyze the terms
"decentralization" and “autonomy”, which mean substantially different things in both the empirical
literature and the international policy debate. I take each term in turn. The literature contains many
taxonomies of decentralization, one of the most influential of which is Rondinelli, et. al. (1984),
who classify the different "kinds" of decentralization as follows:
i. Deconcentration moves some administrative authority to lower levels within central
government agencies. This Gives limited discretion to field agents (to plan and implement
programs and projects, or to adjust central directives to local conditions within the guidelines set
by the higher level of government).
ii. Delegation transfers managerial responsibility for specifically defined functions to organizations
outside the regular bureaucratic structure, and only indirectly controlled by the central
government. But sovereign authority retains ultimate political and administrative responsibility.
iii. Devolution creates or strengthens subnational units of government, the activities of which are
substantially outside the control of central government. Local governments are independent,
autonomous, and usually have exclusive authority over explicitly reserved functions.
iv. Privatization is the auto-divestiture by governments of functions either transferred to voluntary
organizations or left to the private sector.
The various ways in which decentralization is commonly defined are ably treated by
Rondinelli et al. (1983) and Ostrom et al. (1993), amongst others, and I refer the reader to them
for a more detailed discussion. It is important, however, to point out that reforms along the lines
of the four categories outlined above are not different forms of the same thing. Despite the
treatment that they often receive in the empirical and theoretical literature, these reforms create
fundamentally different institutional arrangements that establish different incentives, and thus
prompt different behaviour. Public officials in deconcentrated systems are not subject to the
same incentives as officials in systems that have been devolved or privatized. We should not
expect such officials to behave similarly, and hence we should not expect such reforms to have
This is why grouping such disparate reforms under the common rubric of
"decentralization", and empirically analyzing cases which have implemented reforms that differ
fundamentally in incentive terms, is a mistake. As I discuss elsewhere (Faguet 2010), this
elemental conceptual mistake is responsible for a large share of the indeterminacy in the
international empirical literature on decentralization, which has failed to find strong and
consistent results across the literally thousands of studies and scores of countries analyzed.
In the interests of analytical clarity and empirical tractability, I follow Faguet (2004 &
2009) in defining decentralization henceforth as the devolution by central (that is, national)
government of specific functions, with all of the administrative, political and economic attributes
that these entail, to democratic local (that is, regional or municipal) governments which are
independent of the centre within a legally delimited geographic and functional domain.
This leads us naturally to the concept of autonomy, a word employed much less
frequently in the literature. Autonomy is defined by the Oxford English Dictionary (2009) as
“Of a state, institution, etc.: The right of self-government, of making its own laws and
administering its own affairs.” Dickovick (2005) helpfully signals the three most important
types of autonomies as legal, political and fiscal. The function of decentralization as defined in
this study is therefore to modify a country‟s legal framework so as to increase the political and
fiscal autonomy of its subnational (regional or municipal) governments.
The theoretical justification for such reforms is debated at great length in the
decentralization literature, a debate which has converged to no common position. This study has
no space for discussion of such complex, contested theoretical matters, and instead refers readers
to Treisman (2007) and Faguet (2010), which provide careful, nuanced discussions of the
theoretical implications of decentralization. Instead, I limit myself here to simply stating what in
my opinion are the principal arguments in favor of decentralization that theory provides. When
implemented correctly and sincerely, the local autonomy that decentralization generates should
increase citizen voice and participation in public decision-making, so improving the
accountability, and hence responsiveness, of governments to the governed. These changes result
in a practice of democracy that is deeper and stronger than the comparatively centralized
government that came before.
3. The Empirical Literature
The empirical literature on decentralization spans a number of disciplines and, if the so-called
policy-oriented “gray literature” is included, runs into literally thousands of studies over the past
30 years. If we are to review this huge body of work within the limits of a study such as this one,
some sampling method is required that reduces the number of studies examined without losing
the diversity of disciplinary and methodological approaches, nor of research findings, that
characterize this literature. The rough-and-ready approach used here is to focus on studies of
decentralization recently published in World Development, the peer-review academic journal that
has published the largest number of decentralization papers over the past three decades. The fact
that this is an interdisciplinary journal publishing work in fields as diverse as anthropology and
economics, and that it is considered the most prestigious journal in the field of Development
Studies, only strengthens my case. What follows is I hope representative of the main questions
asked and methodologies employed by students of decentralization. The section ends with a
number of meta-studies that summarize a great deal of additional work.
Of 24 articles on decentralization, local government and responsiveness published in
World Development since 1997, 11 report broadly positive results, and 13 are negative. Fiszbein
(1997), Shankar and Shah (2003), de Oliveira (2002) and Parry (1997) are amongst the most
enthusiastic, finding that decentralization can spur capacity building in local government
(Colombia), decrease levels of regional inequality through political competition (a sample of 26
countries), boost the creation and administration of protected areas (Bahia, Brazil), and improve
educational outcomes (Chile), respectively. Rowland (2001) and Blair (2000) find that
decentralization improved the quality of democratic governance achieved in both large cities and
small towns. And Petro (2001) finds that local government played a pivotal role in raising levels
of social capital in Novgorod, Russia by establishing common social values and priorities for the
community. Other authors, such as Andersson (2004), Larson (2002), McCarthy (2004) and
Nygren (2005), are more cautious, arguing broadly that decentralization is a complex,
problematic phenomenon, but may ultimately have positive effects on local welfare.
Amongst skeptics, some of the most striking are Ellis, Kutengule and Nyasulu (2003),
Ellis and Mdoe (2003) and Ellis and Bahiigwa (2003), who find that decentralization will likely
depress growth and rural livelihoods by facilitating the creation of new business licenses and
taxes that stifle private enterprise (Malawi), and propagate rent-seeking behavior down to the
district and lower levels, so becoming “part of the problem of rural poverty, not part of the
solution”1 (Tanzania and Uganda), respectively. Similarly, Bahiigwa, Rigby and Woodhouse
(2005) and Francis and James (2003) show that decentralization in Uganda has not led to
independent, accountable local governments, but rather to their capture by local elites, and hence
to the failure of decentralization as a tool for poverty reduction. Porter (2002) agrees for Sub-
Saharan Africa more generally. Regarding the environment, Woodhouse (2003) predicts that
decentralization will fail to improve access of the poor to natural resources, or reduce ecological
damage. Casson and Obidzinski (2002) go further, reporting that decentralization in Indonesia
has spurred depredatory logging by creating bureaucratic actors with a stake in its proliferation.
The cross-country evidence of Martinez-Vazquez and McNab (2003) is similarly unhopeful,
showing that we don‟t know empirically whether decentralization affects growth directly or
indirectly, and have no clear theoretical grounds for predicting a relationship either way. Worse,
de Mello‟s (2000) study of 30 countries predicts that failures of intergovernmental fiscal
coordination will lead to chronic deficits and, eventually, macroeconomic instability. The papers
of Sundar (2001), Thun (2004) and Wiggins, Marfo and Anchirinah (2004) offer more cautious,
nuanced arguments, that are on the whole skeptical about the possibility of beneficial change
The larger literature is similarly inconclusive. Amongst studies of Latin America,
Campbell (2001) highlights the extraordinary scope of authority and resources that have been
decentralized throughout the region, and argues that this “quiet revolution” has generated a new
model of governance based on innovative, capable leadership, high popular participation, and a
new implicit contract governing local taxation. But Montero and Samuels (2004) argue that the
1 Ellis and Bahiigwa (2003), p.1010.
political motives of reformers often combine with ex-post vertical imbalances to make
decentralization bad in terms of elite capture, regional inequality and macroeconomic stability.
Rodríguez-Posé and Gill (2004) elaborate further on the tension between inequality and stability
for the case of Brazil, while Eskeland and Filmer (2002) find econometric evidence that
decentralization did lead to improvements in Argentine educational achievement scores.
Perhaps this assessment of the literature is unfair? Perhaps the studies published by
World Development are skewed in some way so as to be unrepresentative? We can check for
this possibility by consulting several broad surveys that, at various points over the past 25 years,
have assessed the state of the field attempting to reach concrete conclusions about
decentralization‟s empirical effects. Amongst the most general and most cited international
surveys is Rondinelli, Cheema and Nellis (1983), who note that decentralization seldom, if ever,
lives up to expectations. Most of the developing countries they report on experienced serious
administrative problems implementing decentralization. Although few comprehensive
evaluations of the benefits and costs of decentralization efforts had been conducted then, those
that were attempted indicated limited success in some countries but not others.
A decade and a half later, surveys by Piriou-Sall (1998), Manor (1999) and Smoke (2001)
are slightly more positive, but with caveats about the strength of the evidence in
decentralization‟s favor. Manor notes that the evidence, though extensive, is still incomplete, but
ends on the positive note that “while decentralization …is no panacea, it has many virtues and is
worth pursuing”. Smoke finds the evidence mixed and anecdotal, and asks whether there is
empirical justification for pursuing decentralization at all. More recently, in a review of 56
studies published since the late-1990s, Shah, Thompson and Zou (2004) find evidence that
decentralization has in some cases improved, and in others worsened, service delivery,
corruption, macroeconomic stability, and growth across a large range of countries.
Litvack et al. (1998) summarize the literature this way: “It is not much of an exaggeration
to say that one can prove, or disprove, almost any proposition about decentralization by throwing
together some set of cases or data” (p.30). Treisman‟s (2007) more recent review of the
literature is bleaker still. He finds results on the effects of decentralization mixed at best, and for
the most part inconclusive, weak and contradictory. “To date,” he says, “there are almost no
solidly established, general empirical findings about the consequences of decentralization”
(p.250). “Almost nothing that is robust or general has emerged” (p.268). The lack of progress
over 25 years and hundreds of studies reviewed by these authors is striking.
By contrast with this unfortunate state of affairs, the experience of decentralization in
Bolivia has produced clear and unambiguous results. The following sections introduce Bolivian
reforms and then review evidence of their effects from a database that includes the universe of
Bolivian municipalities. I begin describing the central tenets of the current autonomies bill, and
then turn to the older, well established Law of Popular Participation (LPP). Taking these
reforms in reverse order allows us to use 16 years of evidence on the effects of decentralization
at the municipal level to predict likely outcomes of extending these political and administrative
autonomies to departmental, regional, and indigenous and rural governments – in effect what the
autonomies bill proposes.
4. The Law of Autonomies and Decentralization
Continuing with its recent trend of expanding the scope of subnational government, Bolivia is
currently debating a bill to grant regional and indigenous autonomies at the subnational level
(Government of Bolivia 2009). The draft framework law (Government of Bolivia, July 2009)
regulates the territorial organization of the state and integrates the new legal concept of
autonomies into the pre-existing regime of municipal and departmental decentralization, with
some adjustments to both of the latter levels. What exactly is this “autonomy”? The law states
that autonomy is exercised when citizens freely elect subnational political authorities who have
the following powers:
create, administer and collect taxes
enact local resolutions and regulations
design and implement local policies, plans and programs in the judicial, administrative,
technical, economic, financial, cultural and social fields, and
use coercive powers to compel respect for the legal norms and decisions that they
implement. (Art. 7)
Autonomous governments are obligated to give account to their constituent citizens and
organizations for their actions and decisions. And the taxes and policies they enact may not
restrict the free movement of individuals, goods and property, services or other economic
Four levels of autonomy are defined: Departmental, Regional, Municipal, and Indigenous
and Rural. While the first three represent a clear hierarchical descent in territorial extent and
level of government, the fourth is a sort of autonomy that is qualitatively different in terms of
social makeup and hence political characteristics, and which can be exercised at different
hierarchical levels. I examine all four types of autonomy in turn below.
In conjunction with the new Constitution, the law also defines the procedures required for
different territorial units to attain autonomous status. These range from the straightforward in
the case of departments – mainly a referendum, to complicated arrangements in the case of
regions, where municipal councilors must form a provisional (regional) assembly to write their
normative statutes, submit them to the Constitutional Tribunal for approval, and then both
statutes and the question of autonomy be approved by electoral majorities in each territorial unit
that makes up the region. Where territorial units have not chosen to become autonomous, the
previous decentralized administration of the state (prefectures, regions and municipalities, all
modestly reformed) will remain in force. The law thus proposes two distinct political and
administrative systems to operate in parallel across Bolivia, with territorial units in effect
choosing between them: the decentralization regime, and that of departmental, regional and local
autonomies. Because Bolivian decentralization has already been treated in section 4 and
proposed reforms are modest, I henceforth focus on the proposed new autonomies and their
likely effects on government efficiency and responsiveness, the sustainability of public finances,
and political mobilization and stability.
Let us first consider what the various autonomies are. Autonomous Departmental
Governments (Arts. 15-17) consist of a legislative and executive branches. The departmental
assembly has deliberative, legislative and investigative powers, and is elected via a combination
of universal suffrage and the traditional customs of indigenous and rural communities. The
executive is led by an elected governor. Departmental revenues include statutory transfers,
royalties and natural resource exploitation rights, income from the sale of property and services,
legacies and other donations, departmental taxes as defined in the Constitution, and other
departmental charges and fees as defined in the Constitution (Art 127).
Autonomous Regional Governments (Arts. 18-22) occur at the sub-departmental level,
when municipalities and/or provinces within a department whose population or area sums to at
least ten percent of the departmental total join to form a contiguous region. Regional
governments consist of a regional assembly with deliberative, normative, administrative and
investigative powers, elected via a combination of universal suffrage (itself a combination of
first-past-the-post and proportional representation constituencies), and the traditional customs of
indigenous and rural communities; and also an executive branch led by an elected maximum
authority. Regional revenues include a share of departmental royalties and natural resource
exploitation rights, charges and fees as defined in the Constitution, income from the sale of
property and services, and legacies and other donations (Art 130).
Municipalities with at least 10,000 inhabitants (or 5,000 in the case of border towns) can
transform themselves into Autonomous Municipalities (Arts. 23-27), whose governments consist
of a municipal council, with deliberative, legislative and investigative powers, and an executive
led by an elected mayor. Like departmental assemblymen, councilors are elected via a
combination of universal suffrage and the traditional customs of indigenous and rural
communities. The law explicitly provides for deputy mayoralties and sub-municipal districts in
order to further deconcentrate local management, planning, service delivery and promote greater
participation. Municipal revenues include municipal taxes as defined in the Constitution,
municipal charges, licenses and fees as defined in the Constitution, a share of departmental
royalties and natural resource exploitation rights, income from the sale of property and services,
and legacies and other donations (Art 128).
And lastly, Indigenous and Rural Autonomies (Arts. 28-43) are for Bolivia‟s indigenous
nations and peoples who share a cultural identity, language, historical traditions, institutions, territory
and world view, whose existence pre-dates the colony, but to include also the Afro-Bolivian people,
and whose territory is presently inhabited by such nations and peoples. (Art. 30(1))
This form of autonomy allows such communities to apply their own principles and institutional
forms to the question of self-government, defense of their cultures, and organization of their
economies. The law stipulates that all such autonomous authorities must respect the rights and
guarantees laid out in the Constitution, including particularly the security of private property.
Indigenous and rural autonomy can be exercised at the territorial, municipal, or regional level,
but not at the departmental level. The reason for this is presumably that none of Bolivia‟s nine
departments complies with the law‟s criteria of indigenous majority and homogeneity – i.e.
departments are too multi-ethnically diverse for this form of autonomy to apply.
The law lays out specific requirements for each hierarchical level to attain this form of
autonomy. For example, highland territories must have at least 10,000 inhabitants, but lowland
territories need only have 3,000 inhabitants; and the State Autonomies and Decentralization
Service (newly created by this law) must certify that an adequate institutional capacity exists in
the territory. The law goes into greater detail on requirements and processes for each
hierarchical level, including specific measures for the re-drawing of municipal borders where
particular autonomy petitions may make this necessary. For the sake of brevity I refer readers to
the text of the law and omit further detail here.
What do indigenous and rural autonomous governments look like? In the spirit of
recognizing pre-existing social norms, customs and institutions amongst Bolivia‟s indigenous
peoples, the law leaves this question notably open (Arts. 36-38). Such governments, it says, will
consist of collegiate institutions such as assemblies, councils, districts, captaincies, and others;
named executive authorities such as executive secretaries, apumallkus, mamatajllas, captains,
chiefs, and others; and also other principle governing bodies such as councils, confederations,
coordinating committees, and others. The law requires autonomous communities to name their
authorities, define their attributes and functions, determine explicit methods for periodic renewal,
and determine sanctions for breach or non-compliance. More specific organization features are
left to autonomous communities‟ discretion. Their revenues include local charges, licenses and
fees as defined in the Constitution, a share of departmental royalties and natural resource
exploitation rights, income from the sale of property and services, and legacies and other
donations (Art 129).
The specific powers and attributes of the various autonomous governments are left
undefined by the law. These would be determined on an individual basis, after specific
autonomy petitions have succeeded and normative statutes have been approved, as stipulated by
the law. The law establishes a procedure for the transfer of individual powers to each of the four
levels of autonomous governments, generalizes at this stage what their specific powers and
attributes may be. In the absence of clear guidelines, one reasonable assumption is that each
level of autonomous government will largely inherit the powers and attributes of the
decentralized administration that preceded it. Hence autonomous departments will largely
inherit the powers of prefectures, autonomous municipalities of decentralized municipalities, and
both autonomous regions and indigenous and rural governments will inherit the powers of the
previously independent units that make them up. This implies that the political foundations,
legitimacy and accountability of each level of government would be changed far more than its
specific attributes and powers, an approach that presumably responds to the underlying purpose
of the law.
The transfer of new authorities and functions to autonomous governments would be
accompanied by a corresponding transfer of resources from higher levels of government. The
magnitude of these transfers are to be calculated based on initial cost calculations, adjusted for
local fiscal effort, inflation, and (national) economic growth. Autonomous governments could
also finance investments (but not expenditures) through public debt. The law includes a “no
bail-out” clause stating that debt contracted by autonomous and decentralized entities is the strict
responsibility of the borrowing entity, and not of the national government nor subnational
governments. The Comptroller General oversees the fiscal accounts of autonomous and
decentralized governments, who are additionally and more generally accountable for their
broader administrative and fiscal affairs to Congress.
But it is the people, the law clearly states, who principally enforce accountability on
autonomous and decentralized governments, using the political process to control their actions
and audit their accounts. This occurs not only through elections and lobbying, but also through
civic organizations exercising “social control” of the quality of public services offered by
Bolivia‟s subnational governments (Arts. 163-166).
5. The 1994 Decentralization Program
To understand the 1994 decentralization reform, it is important to place it in its historical
context. The Bolivian revolution of 1952-1953 destroyed an autocratic plutocracy that not only
oppressed the indigenous majority but – especially in rural areas – literally enslaved them (Klein
1993). This was replaced with a nationalist project to recast social relations through the active
intervention of the state in the nation‟s social and economic affairs. Revolutionary protagonists
sought to transform a poor, backward, extremely unequal country by expropriating the
„commanding heights‟ of the economy – land and mines – so smashing the power of an
entrenched elite. The new government then embarked upon a state-led modernization strategy in
which public corporations and regional governments initiated a concerted drive to break down
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provincial fiefdoms, transform existing social relations, and create a modern, industrial,
egalitarian society (Dunkerley 1984). Revolutionaries deemed direct political control necessary,
and so the country quickly acquired one of the most centralized state structures in the region.
Intellectual trends of the subsequent four decades – Dependencia theory,
Developmentalism, and Import Substitution Industrialization – all contributed to the centralizing
tendency, as did the military governments which overthrew elected administrations with
increasing frequency from the 1960s onwards (Klein 1993). With political power so little
dispersed, there was little point in establishing the legal and political instruments of local
governance. As a result, local government existed in Bolivia only in the 30-40 largest and most
important cities. Beyond these, municipalities existed at most in name, as a ceremonial
institution devoid of both administrative capability and resources. And in most of the country
they did not exist at all.
Although the 1994 reform was sprung on an unsuspecting nation, the concept of
decentralization was by no means new. For more than 30 years a decentralization debate focused
on Bolivia‟s nine departments ebbed and flowed politically – at times taking on burning
importance, other times all but forgotten. The issue became caught up in the country‟s
centrifugal tensions, as regional elites in Santa Cruz and Tarija consciously manipulated the
threat of secession to Brazil and Argentina respectively – with which each is economically more
integrated than La Paz – to extract resources from the centre. The Bolivian paradox of a highly
centralized but weak state, and a socially diverse population with weak national identity, meant
that such threats were taken seriously by the political class, which blocked all moves to devolve
more power and authority to Bolivia‟s regions.
What spurred the change of tack? Why then? Two factors stand out. The less important
one arises from Bolivia‟s failure to achieve sustained, healthy growth despite wrenching
economic reform overseen by the IMF and World Bank. Fifteen years of near-zero per capita
economic growth sapped the credibility of the state and fomented social unrest. The new
Movimiento Nacionalista Revolucionario (MNR) administration of Pres. Gonzalo Sánchez de
Lozada (1993-1997) saw the structure of government itself as an impediment to growth.
Decentralization was an attempt to deepen structural reform in order to make the state more
efficient and responsive to the population, and so regain its legitimacy in the voters‟ eyes.