Pacto fiscal: cómo conciliar eficiencia con equidad - Una propuesta para Bolivia - 2016

In this study the author presents an updated theoretical framework for the analysis of decentralization, and applies it to the case of Bolivia. He finds that current local government funding systems, in addition to not encouraging efficiency and facilitating corruption, are highly inequitable.  In the case of departmental governments, they are, furthermore, highly dependent on volatile hydrocarbons royalties. This encourages rent-seeking and extractive institutions, and also compromises stability.In contrast to the formal institutions of the state, at the base of society there persist inclusive institutions developed over centuries to provide public goods through direct democracy.  They additionally meet key efficiency conditions. The author proposes to adopt these institutions as a basis, mutatis mutandi, for reforming the current system of financing subnational governments. Amongst decentralized public goods, we must differentiate between "territorial" goods, where conditions of efficiency can be attained, and "social" goods, as health and education, where it is imperative to guarantee equal minima to all inhabitants throughout the country, independently of local revenues.  For the provision of territorial goods, both departmental and municipal governments should dispose of adequate taxes and transfers that complement local fiscal efforts, measured according to their respective poverty levels. This would ensure equal rights to territorial development. By contrast, to ensure health and education minima, local governments should allocate fixed percentages of their autonomous income to these sectors, and central government play an equalizing role with respect to social rights.An exercise based on data from the 2016 General State Budget implies that these changes would have broadly redistributive effects, even if departmental governments were limited to two national tax sources. In this way, efficiency can be matched with equity.