Data Science: Panel data analysis to determine the effect of intergovernmental transfers on Colombian territorial tax collection.

Abstract

The fiscal federalism literature studies the decentralization and the budgetary relationship among governmental levels. The first generation seeks to explain the benefits of transfers and decentralization; on the other hand, the second generation seeks an optimal design considering the presence of incentive schemes that depends on different factors and the territorial context. These elements must be analyzed when the goal is an optimal fiscal design of the government structure. This research contributes to the debate measuring the intergovernmental transfer's effect on Colombian municipalities' tax collection, the period between 2000 and 2017 is analyzed. For this purpose, we use logarithmic panel data with the Prais-Winsten model and first-order autocorrelation correction. The results suggest that transfers have a positive impact above municipal collections, in contrast with fiscal laziness arguments. This phenomenon occurs because transfer increases lead to social pressure to maintain public goods; therefore, the local government seeks to enhance local revenue to satisfy the social demand. Also, the transfers impulse the regional economic growth generating a higher tax base.