Chapter

The Determinants of Central vs. Local Government Investment: Democracy and Development in Bolivia

01/2008; ISBN: 978-81-314-1739-3 In book: Decentralization and Development, Edition: First, Chapter: 7, Publisher: Icfai University Press, Editors: S. Ghosh, S.S. Mishra, pp.126-165

ABSTRACT This chapter uses econometric models of public investment to investigate the institutional and political determinants of central vs. local government decision-making. I use a remarkable database from Bolivia’s recent, radical decentralization program. I find that local government policy decisions are progressive both economically and in terms of need, and largely determined by a competitive interest group dynamic which provides poorer citizens, as well as private sector firms and civic institutions, with political voice. This ensures that accountability is binding for elected officials. By contrast centralized investment – more insulated from grass-roots pressures – is regressive in both dimensions. The results suggest a healthy picture of local democracy in which voters are able to influence local government through both their civil institutions and the electoral mechanism. Where local government works well citizens have voice, providing an effective counterweight to the power of private firms and government’s own politico-bureaucratic interests.

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    ABSTRACT: Does decentralization change policy outputs at the local level? If so, for better or worse? Do such changes reflect deep changes in the policy-making process itself, or are they related to technical parameters in the flow of funds? Why do some local governments respond well to decentralization while others respond badly? These are some of the most important questions surrounding the issue of decentralization, which remain open despite a large related literature. This chapter seeks to answer some of these questions for the remarkable case of Bolivia, through a blend of econometric analysis at the national level and detailed qualitative research into local political and institutional processes. I argue that the “outputs” of decentralization are simply the aggregate of local-level political and institutional dynamics, and so to understand decentralization we must first understand how local government works. Hence this chapter examines what decentralization did at the national level, and then digs down into local government processes to understand how it did it.
    06/2006: pages 125-152; , ISBN: 10 0262524546

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