Fiscal decentralization and regional income disparities: evidence from the Colombian experience

Abstract

Using the Colombian experience, this paper introduces new empirical evidence about the relationship between fiscal decentralization and regional income disparities. The study has made some advances in the empirical analysis of this relationship. First, a panel data approach is introduced to catch the dynamics of adjustment involved in a fiscal decentralization policy. Secondly, the analysis is based on a country experience rather than a cross-country analysis, so the effects of fiscal decentralization are estimated more objectively than previous research that exhibits cultural, historical, and institutional variation. Finally, other limitations observed in previous work, such as the absence of spatial dependence and sensitivity of the conclusions to the measures of fiscal decentralization used, are addressed in this paper.