Decentralization in Colombia: searching for social equity in a bumpy economic geography

Abstract

Colombia s decentralization was conceived to improve population s access to social services, reduce poverty and equalized well-being across the territory. However, after more than 20 years of its implementation a big gap across municipalities still remains. This paper examinees the determinants of multidimensional deprivation in social outcomes across municipalities, in particular, we analyse the impact of a decentralization process based on the delegation of delivery of social services coupled with increasing subnational transfers from the Central Government, over the achievement of social minimums as depicted by the average multidimensional gap and the multidimensional deprivation headcount. We use an instrumental variable approach to account for the endogeneity that arises when evaluating the impact of fiscal decentralization over multidimensional deprivation, at the same time we take into account the spatial interrelation of deprivation across municipalities by implementing a spatial autoregressive model with spatial autoregressive disturbance. We find strong statistically significant results across all the proven specifications that confirm: first, spatial spillovers of deprivation across municipalities that need to be taken into account when designing public policy interventions, second, causal diminishing effect of fiscal decentralisation over the multidimensional deprivation headcount ratio and gap. Counterfactual scenarios of spatially differentiated decentralization policies highlight their grater effectiveness over geographically mute designs.