Analysis of
the fiscal dependency of sixth category municipalities in Boyacá, during the
period 1996 to 2012
Análisis
de la dependencia fiscal de los municipios de sexta categoría del departamento
de Boyacá, durante
el periodo 1996-2012
Análise da dependência fiscal dos municípios de sexta
categoria do Boyaca,
durante o período 1996-2012
Siervo Tulio Delgado Ruiz*
Luis Enrique Acero Jiménez**
Research article
Date of reception: 12 mar 2015
Date of aprovval: 25 jun 2015
Abstract
The Constitution of 1991 deepened fiscal
decentralization by augmenting the number of transfers from the central
government towards the local level and also redefined the functions of the
different levels of government, increasing the responsibilities of local
governments. Nevertheless, the tax revenues which generate greater income are
still monopolized by the central government, leaving few possibilities for
local governments, which are financed almost exclusively by monies transferred
from the central government, to impose new taxes. This causes high financial
dependency of municipalities on the central government, especially those which
have a nearly inexistent capacity to generate their own revenues. Consequently, it is important to analyze the
level of dependency of the municipalities in Boyacá, of which 94.3% are
classified as sixth category, and to determine the causal relationship that
this produces. Hence, this article addresses this situation, supporting the
analysis with an econometric estimation.
Keywords: fiscal dependency, transfers, fiscal effort,
decentralization, municipal autonomy.
JEL: H70, H72, H75, H76, H77.
Resumen
La
Constitución de 1991 profundizó la descentralización fiscal al aumentar el
volumen de transferencias del Gobierno central hacia el nivel territorial y
redefinió las funciones de los distintos niveles de Gobierno, incrementando las
responsabilidades de los gobiernos locales. Sin embargo, la tributación
que genera mayor recaudo está monopolizada por el Gobierno nacional, quedando
pocas posibilidades de imposición de nuevos gravámenes a los gobiernos locales,
los cuales se financian casi exclusivamente con los dineros transferidos por el
nivel central de Gobierno. Ello origina
una alta dependencia financiera de los municipios, en especial de aquellos cuya
capacidad de generación de rentas propias es casi nula. Por lo anterior,
resulta oportuno analizar el nivel de dependencia de los municipios de Boyacá,
de los cuales el 94.3 % se clasifica en sexta categoría, y establecer la relación de causalidad que la origina. En
ese sentido, el presente artículo aborda esta circunstancia, apoyando el
análisis en una estimación econométrica.
Palabras
clave:
dependencia fiscal, transferencias, esfuerzo fiscal, descentralización, autonomía
municipal.
Resumo
A
Constituição de 1991 aprofundou a descentralização fiscal; para aumentar o
volume de transferências do governo central para o nível regional e redefiniu
os papéis dos diferentes níveis de governo, aumentando as suas responsabilidades.
Tributação gera maior coleção é monopolizado pelo governo nacional, deixando
pouca chance de novos impostos para os governos locais, que são financiadas
quase exclusivamente através de transferências, provocando uma alta dependência
financeira, especialmente aqueles cuja capacidade de gerar sua própria renda é
quase nula. Portanto, é apropriado para analisar o nível de dependência dos
municípios de sexta categoria de Boyacá e estabelecer
causalidade que origina, com base em uma estimativa econométrica.
Palavras-chave:
dependência fiscal, transferências, esforço fiscal, descentralização, autonomia
municipal.
INTRODUCTION
The
process of political, administrative and fiscal decentralization experienced in
Colombia since the end of the 80s, has been transferring permanently the
responsibilities and powers that the central government previously held to
local bodies, as well as giving them participation in the main revenues,
especially those stemming from the taxation of consumption, without the latter
being linked with the countless commitments that local administrations should
now assume. The adoption of this model since the eighties complies with “(…) a
negotiation with the political class, which ended in the redistribution of
resources and powers in which the nation ceded responsibilities over everything
in social expenditure, but did not cede tax bases, in such a way that the
national government was committed to sending resources through transfers” (Giraldo, 2009, p. 144). In this context, expenditure was
decentralized while the central national government kept the revenue, as a way
to secure the fulfillment of the financial commitments derived from the
national public debt.
This
process has been marked by various reforms that, with the objective of securing
the use of resources in the financing of basic services such as health and
education, have directed the specific destination of these resources, which
secures their investment but at the same time generates inflexibility in their
allocation. Also, due to the fact that indirect taxation is the greatest
generator of funds, but is monopolized by the national government (VAT,
surcharge on fuel, 4x1000, etc.), there are few possibilities left for local
governments to impose new taxes, which base their financing almost exclusively
on funds transferred from the central government.
In
this scenario high levels of financial dependence are generated in
municipalities, whose capacity to generate their own income is almost zero,
except for the scarce resources stemming from property tax, sustained on some
out of date tax valuations, and from industry and commerce, applied to the few
commercial activities and nearly inexistent industrial activities that are
developed in each municipality.
This
low taxation capacity of municipalities for dealing with expenditure
commitments means that local governments, thanks to the prevailing financial
liberalization model, have to resort to greater debt, pledging the scarce
resources that they can generate, thus limiting the future possibilities of
social expenditure (Giraldo, 2009, p.146)
This
restriction on the availability of resources gives a minimum margin for
maneuver to local governments, whose management is limited to the use of
resources transferred in legally assigned allocations.
Because
of the above, it is appropriate to carry out a study on the level of dependence
of the municipalities of Boyaca, of which the
majority are classified as sixth category, in accordance with the parameters
established by Law 617 of 2000, and to establish the possible causal
relationship that results from such dependency. In this sense, this article
addresses this situation so as to analyze the fiscal dependency of
municipalities of the sixth category of the department of Boyacá, with the aim
of establishing its determinants, during the period 1996 to 2012.
Initially a theoretical- conceptual review is conducted of the current
focus of fiscal policy and public finances applied in Colombia, followed by a
short description of the background of decentralization in the country.
Afterwards the results of an econometric estimation exercise are shown to
determine the causal relationship of the fiscal dependency of the
municipalities studied, using the panel data methodology, and it finishes with
the conclusions of the study
THE STATE AND ECONOMIC RATIONALITY
First of all, it is important to understand
what the process of decentralization implies, although it’s true that it
promotes involvement in decision making at a local level, it is also true that
it brings serious implications, especially with respect to the limitations of
local governments in obtaining the resources necessary for financing their
expenditure responsibilities. Also, decentralization is not an isolated
process, but rather it forms part of an economic model that has been applied in
Latin America, of which Colombia is no exception, and that covers various
fields within economic activity.
It is for this reason that the structure of the
public finances in Colombia, nowadays, complies with the application of the
adjustment programs and structural reforms that have been implemented since the
eighties by the International Monetary Fund (IMF), the World Bank (WB) and the
Inter-American Development Bank (IDB), under the premises of the supremacy of
the market and the dismantling of state interventionism. This leads to the much
sought after fiscal balance, which is reached thanks to the increase in taxes,
and the price of public goods (tariffs), accompanied by cuts in government
expenditure (Giraldo, 2009).
Such programs arise as a response to the
policies implemented since the fifties, which were inefficient and generated
income to the benefit of certain sectors, derived from the application of the
importations substitution model, a situation that led to the economic crisis in
the eighties, reflected in the debt crisis.
At this point of history the interventionist
model reached a breaking point, it became fiscaly
unsustainable and inefficient in the fulfillment of its functions, which is why
the ideas of Keynes stopped being functional in the new context of the world
economy and this justified a change of paradigm
In this respect, the introduced reforms have
two dimensions: One oriented towards diminishing the intervention of the state
in order to give greater freedom to the market, and when this intervention is
necessary, it should be carried out with the criteria and instruments closest
to those of the market, and, the other, which aims that state reforms are
complemented by reforms in the markets, reducing the distortions derived from state
control and interference, achieving the so called “(…) flexibilization,
that is expressed in the market of goods with commercial openness, in the
capital market with financial deregulation and in the labor market with the flexibilization of the wage ratio”. (Giraldo
2009, p. 27)
From this perspective, there isn’t any
incompatibility between the adequate management of the flaws in the market on
the part of the state and the role of maintaining competition. “Practically any
role of the state is compatible with competition or with conditions analogous
to competition. […] What exists is the state and the private
sector with competition or without it” (Wiesner,
1997, p. 12).
In accordance with this, Wiesner
(1997), from the neo-institutionalist view, suggests
that the state is conceived as the result of a “contract” between civil
society, constituted of economic and political agents, and the public sector,
which should fulfill the role of “neutral arbitrator” in the processes of
production, distribution and consumption of wealth, income and opportunities.
As a matter of fact, in this contract civil society acts as “the head” that
commissions the “agent”, or in other words, the state, with the task of
assuring the functioning and fulfillment of a set of rules.
In this context, public finances constitute a
redistribution of the allocation that the market makes of a society’s
resources, but as this redistribution is considered to be a distortion of the
economy, the action of the state should be governed by principals of efficiency
and objectivity (typical of the market) in order to make this allocation of
resources.
The application of the neoclassic approach
supposes the reorientation of public policies, in the sense of achieving
certain objectives, such as, “(…) fiscal and financial discipline, targeting of
expenditure and orientation of demand subsidies, fixing of neutral taxes,
privatization and fiscal decentralization (Giraldo,
2009, p. 35).” Regarding this last criterion, it is understood as
decentralization from the perspective of the market “(…) in the measure that it
is conceived as a mechanism for introducing market competition between regions
and localities, and allows a closer relationship between institutions that
offer a service and the user (Giraldo, 2009, p. 36).
In Colombia, this neoclassic view of the state
was adapted by economists who are followers of the so-called neo-institutionalist school, who were behind the structural
reform implemented in the state, on a national and local level, introduced in
the constitution of 1991. According to Wiesner (1997,
p. 18), one of the leading exponents of this group, “[…] there is much in
common between the Neo-instituionalist School and the
Chicago School. This conceptual and operational kinship has to be taken into
account so as to not identify the Neo-instituionalist
School as the antithesis of the Classic or Neoclassic models, nor as the
negation of the postulates of the so-called Chicago School”.
In this way, the principal of efficiency, as a guide
for all economic agents, including the state, is manifested in the use of a
resource in order to finance and certain expenditure, being efficient not only
because of its destination but also because of it’s
origin and nature. Thus, when a resource comes from the markets, or from
conditions similar to this, “[…] it can be anticipated that it will have
greater efficiency than when, for example, the financing comes from taxes,
revenues for a specific purpose or automatic transfers and without greater
conditionality” (Wiesner, 1997, p. 14).
Based on these criteria, Wiesner
(1997, p. 14) considered that in Colombia, during recent years, the proportion
of public expenditure financed by tax revenues has been falling, in relative
terms, in all levels of the public sector, but with greater intensity on the
local level, as there transfers are financing a growing proportion of public
expenditure.
Due to this situation, the theoretical model proposed
for Colombia, based on a decentralizing process, considers that the actions of
public expenditure are framed within the processes of “public choice”, but are
applied to the territorial context.
In terms of public choices, as rational election
for resolving flaws in the market, there are the so-called “local public
choices” in contrast to national ones. For Wiesner
(1997), the latter refer to the allocation of public resources so as to
generate national public goods, whilst the former refer to local public goods
and to regional or municipal policies. In this last case, given the proximity
between the local consumer and local public provider (municipal government), it
is argued that there will be greater economic efficiency and political
transparency (p. 92).
It is supposed that the revelation of
preferences for public goods and local policies, for being more direct, will be
more precise than on a national level. For its part, the response from the side
of the public offering it should be quite efficient. Local public choice is
more exposed to competition that national public choice, given that, particularly,
consumers can “vote with their feet”, and force the supply to compete with
efficiency and equity so as to not lose citizens or consumers. (Tiebout, 1956, p. 24)
This argument serves as a justification for the
process of the decentralization of public revenues and expenditures and of the
decisions related to that expenditure and local public management, cornerstones
of the relationship between the different levels of government and the economic
agents in the territorial body.
To ensure the potential advantage of local decision-making
over national, a condition of an institutional and fiscal nature is necessary, which consists of “(…) a large
part of the financing of local public expenditure coming from local
citizens” (Wiesner, 1997, p. 92), as, if the
financing is supported by transfers, wiith few
restrictions of use, it will be unreasonable to suppose that local contributors
would be interested in overseeing the quality of expenditure that is financed
by taxes paid by others. For this reason, one of the main demands of the local
public choice model is ensuring that a large part of the financing for the local
budget originates from internal own tax revenues.
The importance of self-financing is difficult
to exaggerate. Its significance lies not only in providing additional resources
but also in providing the externalities that make it possible to satisfy other
basic conditions. These are:
institutional strengthening, improvement of information, transparency in
political and fiscal processes, and the ability to make real evaluations of government
administration. (Wiesner, p. 93.)
Thus, the principle of subsidiarity is
followed, which means that the service will be supplied by a lower level of
government that can provide it and finance it in such a way that the goods and
services provided to institutions (schools, hospitals, public services
companies, etc.) by the national level are transferred to the municipal level.
And if the institutions are financed in the market, through the sale of goods
and services, state intervention is unnecessary, it being preferable that such
activities remain completely in the private sector account.
From the above principles it can be deduced
that targeting, demand subsidies and decentralization are policies that, most
of the time, are closely linked. Subsidizing demand implies orienting resources
directly to the poor, including the poorest through targeting systems,
directing economic aid to such people without the intervention of regional
administrations, which provide goods and social services, but for that they
should be self-financed.
Now, from the Neoclassic Theory, three typres of decentralization are distinguished:
Administrative decentralization, which occurs
when functions are transferred and may take place in two cases: when they pass
from the central national level to the decentralized (public entities, for
example), or when they are transferred from a national to a regional level.
However, such transfer of functions (expenditure) should have fiscal
implications (revenue)
Political decentralization, which has a
vertical nature in transferring certain political responsibilities to regional
bodies; responsibilities that also entail resources moving towards subnational
levels, reaching their maximum advance with the popular and direct election of
local governance.
And fiscal decentralization, which indicates
the transfer of a percentage of the resources collected by the national
government from regional bodies, in order to finance the functions that were transferred
by political and administrative decentralization.
Decentralization is also manifested through the
fostering of citizen participation, empowering communities to take part in
determining some policies at a regional level as well as demanding of their governor’s
accountability as regards their mandate. With this, according to the World
Bank, the barriers to social mobility and economic activity imposed by the
state and social institutions are broken (Giraldo,
2009, p. 37), aiming for equality before the law and the general participation
of individuals with apparent equitable treatment by the state.
Another element that comes with the model is
the search for fiscal balance thanks to the reduction of expenditure
obligations, coupled with efficient taxation, plus the elimination of state
monopolies (another distortion). This generates a favorable environment in the
macro as well as the micro, for “efficient” economic activity, in the best
neo-classic sense of the term.
With the constitution of 1991, Colombia introduced
various fiscal reforms aimed at deconcentrating
national expenditure and improving the coverage and efficiency of the provision
of public goods, redefining the expenditure responsibilities of all the levels
of government and modifying the system of transfers from the central to the
regional level, despite the fact that this new system, by elevating the levels
of expenditure, also incremented the fiscal imbalances in both levels.
As was mentioned at the beginning of the
article, the decentralizing model was introduced in Colombia in the
mid-eighties and was expanded with the Constitution of 1991, where it was more
thoroughly developed with the aim of introducing market criteria to the
provision of public goods. Thus, when
agents choose where to locate they express their preferences by comparing what
the locality offers them against the price in taxes of such benefits, as it is
in the market of private goods (Wiesner, 1992, p.
52); so that “(…) less competitive cities will repel productive resources and
competitive ones will attract them” (Giraldo, 2009,
p. 139).
For this reason, as was noted above, a
criterion that justifies decentralization is subsidiarity, the manner in which
the closest proximity between the supply and demand of public goods, plus the
movement of the factors of production, leads to an optimum allocation of
resources, at the same time as generating competition between the regions by
offering better conditions to private agents, who will want greater levels of
public expenditure with lower costs in taxes. In consequence, municipalities
prefer tax reductions or extensions to economic activity, so as to not drive
away private investment, as the IMF indicated (2001, p. 96) “[…] some tax
systems are so complicated and inefficient that they do not allow sufficient
fiscal revenue to be obtained, and also they distort the incentives to work and
save, with disastrous consequences for economic growth”.
This logic shows that “(…) the decentralization
of revenues involves two types of reforms: regional autonomy for the creation
of local taxes and better distribution of the set of existing taxes between
regional entities and the central government” (Restrepo,
2004, p. 88). Nevertheless, in Colombia the emphasis on the search for economic
and social development has relied more “(…) on the quantity of resources and
their distribution or repartation than in the quality
of global policies, and much less in the role of institutions and the capacity
of the restrictions of economic policy to distort the wealth creation process and
the distribution of opportunities” (Wiesner, 1997, p.
18).
Upon reviewing decentralization in Colombia
historically, according to Giraldo (2009, p. 144),
two phases are identified: that of the eighties, when its application began,
during which responsibilities, powers and resources were handed over to local
governments, above all in social areas, maintaining tax collection in the
central level and transferring a part of that to the regions. The other phase,
which is the current one, constitutes a recentralization, given that “(…) on
one hand they have recentralized financial instruments through controls on
regional debt and the allocation of transfers to subnational governments and,
on the other hand, social expenditure has been recentralized through
administrative programs by the national executive”.
According to this logic, the municipality is the
expression of the state closest to the region and has, from the Constitution
and legal mandates, great responsibilities in education, health, and drinking
water, among others, beginning in Colombia discourse and legislation in favor
of decentralization as of 1986. This has constituted a central element in the democratizing
bid of Colombian society. Nonetheless, given that of the total of the municipalities
in the country, 995 are classified as sixth category (in accordance with the
Law 617 of 2000), which implies serious budget restrictions, “(…) today it is
clear that not all municipalities have been in the condition to fulfill their
functions and contribute to realizing the social state under the rule of law”
(Caballero, Galvis & García,
2012, p. 3).
In this way local governments, faced with the
responsibility of ever rising expenditure and almost inflexible tax collection, as the most
efficient taxes from the revenue are of a national type (income, VAT, financial
transactions, wealth), are left with a poor ability to generate their own
resources, before which debt arises as the most convenient means of obtaining
resources, making the financial sector the new financier of local government,
with the implications that that brings for regional autonomy. With this logic, the
Ministry of Finance doesn’t send the resources that regional bodies need, but
it does give them the guarantee so that they can turn to financial entities,
generally private, looking for credit resources.
REGIONAL
CHARACTERIZATION
It was the state, through the legislative, that
established the characterization of local authorities, based on two criteria:
population and current unallocated revenues. Thus, the Law 617 of 2000, in
article 2 (which modified article 6 of the Law 136 of 1994) set the six
categories for classifying districts and municipalities, designating the sixth
category as “All of those districts and municipalities with a population of ten
thousand or less inhabitants and with annual unallocated revenues of not more
than fifteen thousand minimum monthly salaries”. Nevertheless, in paragraph 1
of the mentioned article it is established that “The districts or
municipalities that according to their population should be classified in one
category but whose annual revenues are different from those indicated in this
article, are classified in the category corresponding to their annual unallocated
revenues”.
Current unallocated
revenues are understood to be current revenues other than appropriated funds (Herrera, 2003), and the Law 617 of
2000 seeks that they finance the functional costs of territorial entities. The
main source of these current revenues is tax revenues, corresdonding
to taxes of a municipal nature; that is to say, “pecuniary obligations that the
state imposes on associates and gives to municipalities, without direct or
personal consideration, which can be direct, when they tax rent or assets, or
indirect, when they tax spending or consumption.”
The budgetary restriction on smaller local
authorities (understood to be category six) in generating their own resources
increases their degree of dependence on transfers from the central government,
at the same time as it reduces their freedom in using those resources. This was
confirmed by the National Planning Department (DNP by its acronym in Spanish)
in their report on fiscal development in departments and municipalities (DNP,
2011, p. 24).
It can be corroborated that internal revenues
(tributary or non-tributary) do not have much weight in municipalities and
departments with smaller populations and revenues, while those of special
categories, first and second, in contrast, have expenditure financing that is
determined by exogenous sources such as those of transfers (investment and
functioning) and royalties.
This scheme means that the central government
should concentrate national finances on expenditure that is considered
inflexible, giving priority to the payment of debt, internal and external, for
which expenditures should be decentralized but not revenues, as these should be
remain on a central level so that financial commitments can be fulfilled. In
consequence, the requirements of local communities do not manage to be covered
by the transfers made by the nation and, “(…) there is a división
between local needs and local resources, in such a way that the public election
process is not transparent given that local decisions do not reflect the cost
of adopting them.” (DNP, 2011, p.145).
For this reason, authors such as Wiesner (2006) and Clavijo,
Vera and Vera (2013), suggest that Colombia has a high level of expenditure
inflexability, caused by the commitments assumed constitutionally as well as
legally, especially the compromises specified by the national government in the
Constitution of 1991 and the activist interpretation that has been given by the courts in its sentences, in particular
the Constitutional, to the reponsibilities that the state should assume.
The traditional theory maintains that the
public goods that benefit certain groups of the population should be provided
by local governments. In this way a direct relationship between the costs and
benefits of these goods would be guaranteed. In contrast, public goods of a national
scope, such as the law and national defense, as well as economic stabilization
policies and the redistribution of revenue, correspond to the list of central
government functions. Also, it is suggested that, “(…) when the tax base
responds to a tariff differencial, local governments
should impose taxes that reflect the cost of the social good.” (Iregui, Ramos & Saavedra,
2001, p. 5). Therefore, if what Rincón, Ramos
and Lozano
In this context, Neoclassicism, inspired by
rationality, envisages decentralization as part of the process of
globalization, with the aim of favoring the free movement of international
capital and promoting social demands, especially those directed towards local
governments, which, not having their own available resources, have to resort to
a greedy financial market to locate resources at high rates of interest, which
are secured by local tax revenues, which upon being pledged, limit public
action in terms of the future. When regulation disappears and there is absolute
freedom in financial markets, debt allows speculative profiting from public
revenues.
Within this framework, decentralization is
constrained by the contractionary policies of the Banco de la Republica, with a
view to controlling inflation and the commitment of the government to reducing
the tax deficit, making the increase in tranfers
difficult. To this end the argument for institutionalism was embraced which led
to the constitutional adoption of the principal of balanced budgets and the
issuance of a norm of adjustment (Law 1473 of 2011) that allowed a balaced Budget to be maintained within the tax year, as
well as establishing the action to be taken in case the goal was not achieved
Thus, public choices reflect more the
“rational” interests of those who make public decisions than of those who are
supposed to benefit from these decisions. That is why “(…) the theory of “public
choice” can be defined as the application of the model of “rational choice” to
political science and political processes:“it
is the application of the neoclassical model of economic theory to politics” (Wiesner, 1997, p. 19).
Nevertheless, in Colombia, the structure of
social, economic and political organization has been constructed more on the
basis of abstract normativity than of empirical reality regarding the real
conduct of economic agents and politicians. Here “rational choice” is not the
determining principal of human conduct (Wiesner, p.
17).
Paradoxically, the implementation of the
decentralization process since the eighties, buried the policies of regional
development in exchange for the interest in the territorial program of public
social expenditure (Restrepo, 2004, p. 88). In this framework the role that tranfers have played has been crucial.
BACKROUND TO DECENTRALIZATION IN COLOMBIA
During nearly the whole of the XX century
Colombia was characterized by having a centralized tax system, in which the
national government was the main tax collector and provider of public goods and
services. While this process was begun with the consolidation of the
nation-state, enshrined in the constitution of 1886, it’s
re-enforcement only occurred after the Second World War, a time in which the
central government channelled the most important tax
revenues to its advantage and assumed the majority of expenditure (Iregui, Ramos & Saavedra,
2001, p. 4).
The first attempt to reassign functions among
the different levels of government was the legislative act project introduced
by the López administration in 1976, with which they
attempted to establish regional finances through the strengthening of
independent revenues and the redefinition of the powers of the departments and
municipalities. Although this Project did not succeed, the basis had been laid
for later reforms such as the Law 14 of 1983 and the Law 12 of 1986(Iregui, Ramos & Saavedra,
2001, p. 4).
The Turbay government
again recognized the problem of excessive centralization and the lack of regional
autonomy, which is why in its development plan it indicated that decentralization
was one of the objectives of economic policy and an instrument for favoring the
autonomy of regional entities, which is why
It sought to reassign and redefine powers
between the central and regional levels, avoiding that the financing of
departments and municipalities would depend exclusively on national transfers.
In this way, it hoped that the regions would take greater advantage of their
tax potential by means of greater fiscal effort, which would result in less
dependence on national contributions n(Iregui, Ramos & Saavedra,
2001, p. 8).
It was the Betancur
administration that really pushed the first important reforms as regards
decentralization, through the Law 12 of 1983, which had the objective of
elevating the level of local collections by means of the simplification and
rationalization of the municipal and departmental tax system. This reform was
adopted just at the moment in which a serious deterioration in the national
central governments finances was revealed, caused by
significant growth in current expenditure, while Latin America was suffering
from the external debt crisis.
Law 12 of 1986, also issued under this same
government, established the progressive increase in the participation of
municipalities in the collection of value added tax (VAT). Although this law
increased the volume of resources transferred to municipalities, local autonomy
over their management was questionable (Iregui, Ramos
& Saavedra, 2001, p. 9). The law explicitly
defined the activities that these resources should be used for and to a large
degree conditioned the transfers to the fiscal effort observed in the
collection of property tax.
In summary, the fiscal reforms of the eighties
had two fundamental objectives: one, the interest of the government in
relieving its budget of some of the regional expenditure responsibilities in it’s moment of crisis and the deterioration of the national
finances; and the other, the desire of the national government to increase the
coverage and improve the quality and efficiency of public expenditure (Iregui, Ramos & Saavedra,
2001, p. 9).
Although during the eighties the were no
significant changes as regards fiscal decentralization, in the political
terrain there were important advances which led to the popular election of
mayors in 1986. This reform gave citizens more participation in the making of
decisions of municipal interest. In theory, it aimed to “(…) reduce the
distance between citizens and their government with the aim of strengthening
the link to local political responsibility and inducing the efficient use of
resources” (Wiesner, 1997, p.103).
Countries can adopt two fiscal models; a fiscal
system in which local governments have full autonomy as regards expenditure and
revenue, where local taxes finance local public goods and the central
government is in charge of national defense and the redistribution of revenue.
In the other model, a centralized fiscal system is designed in which the
national government is the principal tax collector and provider of local and
national public goods and services. Against these, despite the implemented the
decentralization process, the Colombian tax system is closer to the centralized
model, as departmental and municipal governments do not have the autonomy to
establish taxes, although it is true that the congress has ceded some of the
national taxes to local governments, the establishment of tax brackets and tariff
ranges has corresponded exlusively to the legislative
body (Iregui, Ramos & Saavedra,
2001, p. 9).
Additionally, “(…) the transfer of taxes has
been dependent on that the resources should be used for expenditure headings
determined by law. A large percentage of local expenditure is not the result of
autonomous decisions, because a good part of this is financed by resources
stemming from assigned transfers from the national central government.” (Iregui, Ramos & Saavedra,
2001, p. 10).
As regards fiscal decentralization, the
constitution of 1991 and its regulatory norms increased the volume of transfers
from the central government to the local level and redefined the functions of
the different levels of government, augmenting the responsibilities of local
governments. Thus, article 356 defined
the destination of resources of fiscal origin and set the guidelines for the
distribution of these resources among the departmental governments and special
districts. As well, this article established that “(…) responsibilities could
not be decentralized without the previous allocation of sufficient fiscal
resources to deal with them.” Although the article indicated that municipal “participation”
is destined for social investment, it did not define the specific programs that
are to be financed by these resources (Iregui, Ramos
& Saavedra, 2001, p. 11). Law 60 of 1993
concretely defined the functions of departments and municipalities, the
territorial distribution of the revenue-sharing system and of the participation
and the criteria that the territorial entities should follow when assigning the
resources transferred by the nation, a distribution structure that was later
modified by the Law 715 of 2001, a previous constitutional reform that allowed
it, and today governs the so-called General Participation System (SGP by it’s acronym in Spanish).
In the case of the revenue-sharing system, Law
60 again points out that 15% of tranfers are to be
distributed in equal parts among the departments and special districts, and the
remaining 85% is to be assigned according to a formula that has five criteria
of, “(…) fiscal and administrative efficiency, the current and potential demand
of the services of health and education on the part of the population.”
In the case of transfers to municipalities, Law
60 of 1993 established that their assignation should be made based on the
number of inhabitants with unsatisfied basic needs, the degree of relative
poverty of the municipalities and indicators of fiscal and administrative
efficiency. Nevertheless, due to the unclear management that took place before
its issuance, the Law 715 of 2001 set the distribution percentages and specific
destination of the resources assigned to each municipality, leaving territorial
entitities with a low margin of manoeuvre
as regards their use, except for a small percentage of general purpose resources,
which in the majority of cases ends up financing running costs.
From the fiscal point of view, the changes that
came with the new constitution were basically modifications of the transfer
system. These reforms, “(…) did not introduce changes that permitted
subnational governments to exercise different fiscal management. In particular,
it maintained the same regional tax system and the same national interfence in the assignation of expenditure financed by
resources from transfers and with resources stemming from some local taxes.” (Iregui, Ramos & Saavedra,
2001, p. 13).
On the other hand, the legislation assigned a
specific destination to some local taxes, which caused more inflexibility in the
use of tax revenues. The aforementioned problems are added the fact that the
local taxation norms were written without taking into account the economic and
geographic diversity of the different regions of the country. As a consequence
of this, there were cases in which some of the established taxes did not, in
practice, apply, and regardless, could not be substituted for a new tax. An
example is motor tax, which cannot generate significant revenue in those
localities were the main mode of transport is not motor vehicles, or where the
lack of roads does not allow for them.
The fact that the reforms of the nineties did
not consider changes to the regional tax system is inconsistant
with the new territorial framework of powers. For this reason, Iregui, Ramos and Saavedra (2001,
p. 11) affirm that:
Subnational governments should assume new
responsibilities without having the possibility of generating fiscal resources
other than transfers and those that the system before the reforms provided. The
impossibility of generating new revenues is much more serious when it is recognised that the taxes that these governments collect
are the least dynamic and flexible.
The lack of flexibility to generate internal
revenues means that regional governments depend on transfers from the national
government. Indeed, these type of national transfers constitute the most
important revenue source for the majority of the departments and municipalities
in the country, a circumstance from which the department of Boyaca
does not escape, as 94.3% of its municipalities are classified, according to
the Law 617 of 2000, in category six, with high dependence on the resources
transferred from the central government and with little possibility of
generating its’ own resources.
TRANSFERS AS A PILLAR OF DECENTRALIZATION
Territorial transfers are the mechanism through
which decentralization in Colombia has been financed, as the government
transfers not only powers and responsibilities to the territorial entities, it
also sends resources for their financing. This scheme has been maintained since
the mid-eighties, and thanks to the new constitutional framework, it has been
strengthened.
The beginning of fiscal decentralization was made through the the revenue-sharing system, created in 1968, as a mechanism
for transfers from the central govenment to the
departments, the national territories and the Special District of Bogota, where
the amount of the transferred resources would correspond to a percentage of the
ordinary revenues of the nation (not including non-tax revenues) and were destined
to cover the expeditures of education and health on a
local level
Later, with the Constitution of 1991 and the
Law 60 of 1993, two classes of transfers were set: the revenue-sharing system directed to departments and districts, and
the participation of municipalities in the revenues of the nation. To these
should be added the complementary transfers to the revenue-sharing
system for education, which
strengthened the process of fiscal decentralization. This can be seen in the
increase of the participation of territorial entities in national tax
collection, which went from 13% in 1991 to 50% in 2011
This increase in the level of participation of
transfers is also observed in expenditure, given that, as Rincón,
Ramos and Lozano (2004) affirm, transfers represented 25% of the total increase
in expenditure between 1990 and 2001, equivalent to going from 2.4% to 5.7% of
the GDP.
The growing participation of
transfers in government expenditure and the inefficient use of these on the part
of the territorial governments, led to the issuing of the legislative act 001
of 2001 and the Law 715 of the same year, norms that modified the amount,
assignation criteria and destinations of the transferred resources. The
constitutional reform unified the transfers in what is known as the general
participation system (SGP, by its acronym in Spanish, and referred to in this
way from now on) and bound their behaviour to the
current revenues of the nation according to the real average growth of the
previous four years. Also, the departments, districts, municipalities, and
indigenous reservations were included in the SGP, in contrast to the revenue-sharing system which considered only departments and districts.
In accordance with Law 715 of 2001 (article 2),
the resources of the SGP give priority to the financing of the provision of
educational and health services, corresponding to 58.5% to education and 24.5%
to health, while 17% is set aside for general purposes (drinking wáter and basic sanitation, social housing, sport and
culture, among others, but without specific allocation) and the remaining 4% is
reserved for the National Pension Fund of Territorial Entities (FONPET by its
acronym in Spanish), indigenous reservations, the municipalities bordering the Magdelena River as well as schools meals(Clavijo, Vera & Vera, 2013).
This reform to the transfer system allowed the
reduction in participation of the SGP in the nation’s current revenue, going
from 40.7% to 28.9% between the years 2002 and 2008
In this sense, upon revising the government
initiatives aimed at reducing the levels of poverty, examples can be found,
such as the National Rehabilitation Plan, Plan Colombia, the Social Solidarity
Network, Social Action and the Department for Social Prosperity, with their
programs “(…) of which have all been random, circumstancial
actions, dependent on the Republic’s President; they do not follow a “state
policy”, but rather the social policy of
the acting president” (Restrepo, 2004, p. 88).
As has been previously mentioned, the
decentralized matters are all in the area of social policy,
in particular, in accordance with the Statute 715 of 2001, most of the
resources are absorbed by two sectors: education and health. However, three
concerns color these developments: efficiency, equity and the sustainability of
such efforts (Restrepo, 2004, p. 88), without
evaluating the quality of these services, the resources of which have been
captured by the private sector.
The growing expenditure levels of the state in
the face ofthe efficiency and evolution of the
sources of financing meant that one of the the
conclusions reached by the Commission for the Rationalization of Expenditure
and Public Finances (Rosas, 1996, p. 25) is that the causes of the fiscal
imbalance of the public sector follows the rapid expansion of expenditure
overtaking the efficiency and sustainability of revenues, the rigidities of the
budgetary process, especially as regards the transfers derived from
decentralization, the lack of institutional coverage and the flaws in the
information and the strong political pressure caused by growing public
expenditure, which generally works to the benefit of small groups of
individuals (the so-called “rent seekers”) and not the majority of citizens.
Despite this, from the neo-institutionist
perspective, the existence of rent-seekers is justified, as Wiesner
(1997, p. 123) affirms:
(…) rent
seekers should not be disqualified as stateless people without social
sensitivity, moved only by their greed. They are, simply, economic agents
making use of their rational choice so as to maximize profits. It’s pointless
to call for them to be generous and self-sacrificing citizens. If the
conditions exist for them to seize profits, they will do so.
In contrast, for some analysts, such as Restrepo
(2004), decentralization brings with it benefits beyond the eminently
financial, as three fundamental features of the state and of the Colombian
political regime, centralism, presidentialism and
bipartisanism, had suffered a serious decline in the last 15 years, as a result
of decentralization.
Despite the fact that the decentralization
model has reduced the presence of the state, a current economist like Piketty (2014) suggests that the present crisis has led to
a “return to the state”, where the presence and action of the state is more
active than ever and in this sense, taxation is not a technical question. It is
above all a political and philisophical problem,
perhaps the most important of all political questions. This has always been so.
At the heart of every important political upheaval lies a fiscal revolution.
ESTIMATIONS
OF THE CAUSAL RELATIONSHIP OF THE FISCAL DEPENDENCY OF CATEGORY SIX
MUNICIPALITIES IN BOYACÁ
The department of Boyacá is made up of 123
municipalities, which have been classified according to what is stipulated in
Article 2 of Statute 617 of 200, leaving 116 of them in category six. That is
to say that the municipalities with a population equal to or less than ten
thousand inhabitants or with annual unallocated current revenues of no more
than fifteen thousand minimum monthly salaries (approximately COP$9.24 billion
for the year 2014), or both situations at the same time, taking into account
the budgetary conditions that prevail at the time of making the classification.
The above indicates that 94.3% of the municipalities of Boyacá are placed in
the lowest territorial category, due to their population and above all, their
poor ability to generate unallocated revenues.
Thus, some of the financial management
indicators established by the DNP[1] were used to complete the
estimation. These were calculated for each of the 116 reference municipalities,
using the budgetary information reported by the DNP as input, figures that
correspond to the period of 1996 to 2012 and that were deflated, being
expressed in constant pesos of the year 2008. Additionally, once the indicators
were individually calculated for each year, the average of the indicator for
the 116 territorial entities was determined.
The
econometric method used is that of panel data, which allowed for a more
complete study of the data as it permits the capture, in one sole analysis, of
the temporal and individual (also known as transversal) aspect of the
information. In this way, the panel data managed to increase the efficiency of
the estimations carried out, given that they increase the amount of simple data
that is used in the analysis. This allows quantification in a more exact manner
than studies that only use temporal or transversal analysis to estimate the
impact of some variables on another (Wooldridge, 2010).
For
the above, the estimation of the econometric model that allows for establishing
the behaviour of fical
dependency of municipalities of category six in Boyacá was carried out with a
panel data model and using fixed and temporal effects. Thus, the sixth category
municipalities make up the units of the cross-section and the years the time
series variable.
In
accordance with the approaches outlined in the previous subheading, as well as
the empirical evidence of the behaviour of the
financial management indicators, the variables that succeeded in significantly
explaining the variability of fiscal dependency, correspond, mainly, to factors
of taxation and total revenues,
operational costs in relation to unallocated revenues and the ability to
self-finance investment; for it’s part, the
population variable allows for the control of the municipalities by size.
Given the significant influence of politics on
the definition of local and national budgets, political variables have been
included that aim to reflect this influence on fiscal dependency, such as the
years of presidencial and mayoral elections. Also, a
normative variable is included that describes the change in the transfer
regulations that occurred in 2001 (Statute 715701), and the Unsatisfied Basic
Needs (UBN) Index as an indicator of the degree of social advance of each
municipality.
Due to the structure of the panel data, it is
necessary to include temporal effects so as to isolate the influence of
temporal variables, such as political cycles, normative changes, and the
evolution of the economy, which have effects on the degree of fiscal dependency
of category six municipalities. Additionally, fixed effects are collected for
each of the municipalities though binary variables, among which can be
established those differential factors for each of the entities that affect
dependency but that do not change over time.
Also, the model was
estimated using robust standard errors, so as to correct the possible presence
of heteroscedasticity. Based on the above, the
specification of the model is the following:
Level of fiscal dependencyit = b0 + b1Fiscal effortit + b2Tax.Rev./Total. Revit +
b3Oper Expen./Unallocated.Curr.Revit + b4Self-finance. Investmentit
+ b5Populationit
b6 Presidential Politicsit + b7Mayoral Politicsit
+ b8Change SGPit + b9UBN(2005) it
+
FEi
+ TEt + eit
Where i
corresponds to the catyegory six municipality and t to the year.
In
Table 1 the variables used, their measurement and the sources of information
are shown.
Table 1. Variables of the fiscal dependency model
|
VARIABLE |
MEASUREMENT |
SOURCE
OF INFORMATION |
|
Level
of fiscal dependency |
Percentage contribution of
transfers (SGP) to total municipal revenue |
Budgetary implementation for municipalities
(DNP) |
|
Fiscal effort |
Yearly variation in tax collect
against total municipal revenue |
Budgetary implementation for
municipalities (DNP) |
|
Tax.
Rev/ Total rev. |
Percentage contribution of tax
revenues to total municipal revenue |
Budgetary implementation for
municipalities (DNP) |
|
Oper. Expend./Unallocated.
Curr.Rev |
Contribution of operational
expenditure to unallocated current municipal revenue |
Budgetary implementation for
municipalities (DNP) |
|
Self-finance.Investment |
The relation between current
savings and investment expenditure by the municipality |
Budgetary implementation for
municipalities (DNP) |
|
Population |
Number of inhabitants of the
municipality according to the results of the DANE (National Administrative
Department of Statistics) Census 2005 |
DANE |
|
Presidential politics |
Binary variable equal to 1 for
years of presidential election(1994, 1998, 2002, 2006 and 2010) and 0 for
other years |
National Civil Registry |
|
Mayoral politics |
Binary variable equal to 1 for
years of mayoral election(1994, 1997, 2000, 2003, 2007 and 2011) and 0 for
other years |
National Civil Registry |
|
SGP Change |
Binary variable equal to 1 for
years after 2001 (when Statute 715701 was issued) and 0 for previous years |
|
|
UBN (2005) |
Level of unsatisfied basic needs
of the municipality according to the DANE Census 2005 |
DANE |
|
FE (Fixed effect) |
Binary variable for each
municipality |
|
|
TE (Temporal effect) |
Binary variable for every year,
from 1996 to 2012 |
|
Source: the author
Below,
in Table 2, the results of the estimations for the level of fiscal dependency
of category six municipalities of Boyacá are registered, under the panel data
methodology and ordinary least squares (OLS), calculated with robust standard
errors so as to avoid the presence of heteroscedasticity.
Table 2. Model of fiscal dependence for category six municipalities of Boyacá
|
|
|
|
Number of obs |
1903 |
||
|
|
|
|
F(136, 1766) |
19.8200 |
||
|
|
|
|
Prob > F |
0.0000 |
||
|
|
|
|
R-squared |
0.6042 |
||
|
|
|
|
Adj R-squared |
0.5737 |
||
|
|
|
|
Root MSE |
8.4191 |
||
|
|
|
|
|
|
|
|
|
Variable |
Coef. |
Robust Std. Err. |
t |
P>t |
[95% Conf. |
Interval] |
|
Constant |
51.29538 |
4.287 |
11.96 |
0.000 |
42.886 |
59.704 |
|
Fiscal Effort |
-0.00406 |
0.002 |
-1.710 |
0.087 |
-0.009 |
0.001 |
|
Tax. Rev./ Total Rev. |
-0.30630 |
0.052 |
-5.910 |
0.000 |
-0.408 |
-0.205 |
|
Oper.Costs/Unalloc.Rev. |
0.02639 |
0.011 |
2.460 |
0.014 |
0.005 |
0.047 |
|
Self-financ. Investment |
-0.00060 |
0.000 |
-2.780 |
0.005 |
-0.001 |
0.000 |
|
Population |
-0.00020 |
0.000 |
-0.580 |
0.561 |
-0.001 |
0.000 |
|
Presidential |
-0.45313 |
1.184 |
-0.380 |
0.702 |
-2.775 |
1.869 |
|
Mayoral |
-7.78158 |
1.120 |
-6.950 |
0.000 |
-9.978 |
-5.585 |
|
Change SGP |
2.81777 |
1.245 |
2.260 |
0.024 |
0.376 |
5.259 |
|
UBN (2005) |
0.17414 |
0.079 |
2.200 |
0.028 |
0.019 |
0.329 |
Source: calculations by the author base don previously referred to information
The
results of the estimation indicate that the selected exogenous variables have a
significant effect on the fiscal dependency of category six municipalities in
Boyacá, which corroborates various behavioural
relationships of these variables, analysed in the
previous section. It is observed that the level of fiscal dependency is
positively impacted by the relationship between operational costs and
unallocated revenue, the UBN index of each locality and the change in the
transfer regulations established by Statute 715 of 2001, which the general
participation system (SGP) was created. This positive effect indicates that to
the dgree the municipalities increase the proportion
that operational costs represent against unallocated revenues, this would
indicate that operational costs are increasing, which limits the possibilities
of the municipal administration to make resources available for other uses, or
that revenue generation is declining, or both situations at the same time. This
would indicate flaws in administrative efficiency and increase the fiscal
dependency of the territorial entity (the coefficient has a value of 0.02638).
The
coefficient of the impact of the UBN of the 2006 Census on the endogenous is
equal to 0.17414, which indicates that the higher the level of UBN of the municipalies, the higher the fiscal dependency will be, as
this poverty index is one of the criteria used by the national government to
establish the allocation of SGP resources transferred to the territorial
entities, in such a way that the greater the level of poverty, the more
resources will be transferred.
The variable of SGP change shows a positive
coefficient (2.81777), which is explained by the impact on fiscal dependency
caused by the change in transfer regulations implemented by Statute 715 of
2001. This is demonstrated by comparing the average level of fiscal dependency,
which went from 59.6 for the period 1996-2001 to 62.6 for the years 2002-2012.
Even if it is true that the SGP increased the transferred resources and ensured
their use, in the same way the levels of fiscal dependency grew, especially in
the smallest territorial entities, such as the sixth category municipalities in
the study.
The model also estimated a negative
relationship between the level of fiscal dependency and variables such as
fiscal effort (-0.00406), the difference between tax revenues and total
municipal revenues (-0.30630), the degree of self-financing of investment (-0.00060),
and the population of the municipalities (-0.00020). Of these variables, the
importance of the taxation capacity of the municipalities to generate their own
revenues should be highlighted as a mitigating factor regarding fiscal
dependency. To the degree in which municipalities manage to improve their
levels of collection, prior to the update of their urban and rural taxes, as
well as their commercial and industrial census (where these activities are
carried out) they will be able to increase their tax revenues and gain some
autonomy in the use of resources. However, taking into account that municipal
taxes in small localities will not increase enough with these actions, the
central government would be required to transfer other funds to the territiorial entities, not under the transfer scheme, but
rather as direct levies.
Fiscal effort is linked to this behaviour (see figures 5, 7 and 11). If the tax collection
capacity is limited, the variation of the same would not see substancial changes between one year and another; from
there comes the low value of the coefficient, the behaviour
of which is captured in part by the fixed effect. A similar analysis can be
made in the case of the low impact of self-financing of investment (-0.0006)
and population (-0.0002). Their marginal yearly changes are captured by the
fixed effect, as on the one hand, collection does not improve and the variation
is marginal, and, on the other, population changes are moderate, and
considerable effects on the level of fiscal dependency are not expected from
these variables
Finally, the model incorporates two dummy
variables that capture the posible impact that
political cycles can have on the behaviour of the
level of fiscal dependency. In the first case the presidential poolitics variable is introduced, to indicate the effect
that the electoral campaign to elect the national president has on fiscal
dependency in a given year, given that, as a means of capturing votes, the national
government increases the budgetary allocations to the regions, through
investments or social programs. These expenditures are made by the central
government, which means that in the composition of the budget these headings increase
at the cost of reducing the rate of transfer growth, especially those directed
to small municipalities with low numbers of voters. These actions temporarily
reduce the fiscal dependency of the localities, but this
changes the following year. For this, the coefficient of the impact of
presidential elections has a negative sign, despitethe
fact that it drops from -2.2 to -0.4 and it becomes less significant when the
fixed effect is introduced in the model, which means that there a national
political effect that is captured by the fixed component, which could be the
political preferences, the captive vote and the political culture of each
municipality.
The political impact on the local level is
captured in the mayoral politics variable, to demonstrate the negative impact
(-7.78) that the local electoral process has on fiscal dependency. In years of
political campaigns to elect local authorities, two pheneomena
can be generated; one is an increase in resources directed by the central
government to the departments, managed thanks to the connection between the
political class on a national scale (ministers) and their political bases in
the localities, where one manges resources in order to politically favor the other, in
an effort to influence the election results; in this way the practice augments
capital inflows and thus total revenues, reducing fiscal dependency. The other
phenomenon occurs when, at the end of a period of government, during the
electoral period for the next, the municipal leaders get the municipal councils
to approve loans for making investments, especially in infrastructure, which increases
capital inflows and total revenues and reduces, at least temporarily, the level
of fiscal dependency.
Together,
the variables and impacts previously described contribute to explaining the
behavior and evolution of the level of fiscal dependency of category six
municipalities in Boyacá, which although it is true that it depends in part on
said explanatory variables, it is also clear that a good part of the fiscal
dependency is caused by structural circumstances such as the implemented
decentralization scheme, the size of the municipalities, the value of the tax
census, the level of economic activity, the bad management of local
administrations and the political culture of the citizens, elements which are
all included in the value of the constant of the model (51.29). Lastly, the
results indicate that the processes of local public choice, which are touted by
the designers of the fiscal model that has guided Colombia during the study
period (described in chapter 2), are not evident in sixth category
municipalities in Boyacá, where the high level of dependency indicates that
this choice depends more on the decisions of the central government and on the
political logic that intertwine local and central governments.
Finally,
so as to have a view of the historic evolution of the dependency level of the
municipalities of Boyacá, below appear various maps that show the level of
fiscal dependency in five moments during the study period, from which it is
deduced that around 86 municipalities have levels of fiscal dependency above
55%, such as, Chita, Mongua, Panqueba,
Paya, Socotá, Tipacoque and Tunugnuá, among
others, where the level of fiscal dependency is above 80%. Thus, in general
terms, it is observed that fiscal dependency increases for the years 2000, 2004
and 2008, while for the year 2012 the situation improves a little, which does
not indicate so much an advance, as a reduction of the problem.
Map 1. Level of fiscal dependence of category six municipalities of Boyacá
Source: the author.
CONCLUSIONS
The
political, administrative and fiscal decentralization process implemented in
Colombia has been permenantly transferring powers and
responsibilities from the state to the territiorial
entities as well as involving them with the main revenues without taking into
consideration the countless committments that local
administrations now must take on. For this reason, decentralization meant that
the nation ceded responsibilities to the territorial entities,
but without giving them the tax revenues, which is why a transfer system was
established, so as to involve the territorial entities in the revenues that the
central government collects. That is to say that they decentralized the
expenditures while the national government kept the revenues. Thus,
decentralization made the municipalities dependent on transfers that come from
the central government, given the poor capacity they have to generate internal
revenues.
The
municipalities studied show a low contribution to tax revenues in comparison to
the total revenue, which is in accordance with the low value generated by the
following taxes: tax valuations (property tax), the amount of sales or gross
revenues from industrial and comercial activities (comercial and industry tax) and the value of fuel sales
(petrol tax) within the jurisdiction of the municipalities studied.
Against
this backdrop transfers make up the main source of financing for
municipalities, even more after the implementation of the SGP in the year 2001.
This causes a disparity between the contribution of tax revenues and transfers
to the total revenues of municipalities that is demonstrated by the following
information: while the first have, on average, a contribution of 7.8%, the
others, on average, reach 62.9% during the study period.
The econometric estimation indicates that the
fiscal dependency of category six municipalities in Boyacá
is determined by variables that have a positive impact such as the relationship
between operational costs and unallocated revenues (0.026), the UBN index of
each locality (0.1741) and the change in the transfer regulations established
by statute 715 of 2001, for which the SGP was created (2.8177), while the other
set of variables such as fiscal effort (-0.00406), the difference between tax revenue
and total revenues of the municipalities (-0.30630), the degree of
self-financing of investment (-0.00060), and the population of the
municipalities (-0.00020), have a negative impact on the level of fiscal
dependency. Also, there are political factors such as the presidential and
local election processes, which negatively influence fiscal dependency, as in
election years political interests generate assets that reduce this dependency,
they are short term effects that disappear in other years, since the public
expenditure is managed by the governments in the months prior to the elections
with a political rational, rather than an economic one, serving specific
political interests.
In
summary, it can be affirmed that the previously mentioned factors contribute to
explaining the behaviour and evolution of the level
of fiscal dependency of sixth category municipalities in Boyacá, which while it
is true, depends in part on said explanatory variables. It is also clear that a
good part of the fiscal dependency is caused by structural circumstances such
as the implemented decentralization scheme, the size of the municipalities, the
value of the tax census, the level of economic activity, the bad management of
local administrations and the political culture of the citizens, elements which
are all included in the value of the constant of the model (51.29). For this reason,
the processes of local public choice, which are touted by the designers of the
fiscal model that has guided Colombia during the study period (described in
chapter 2), are not evident in category six municipalities in Boyacá, where the
high level of dependency indicates that this choice depends more on the
decisions of the central government and on the political logic that intertwine
local and central governments. In such a way, the purported financial autonomy,
which decentralization was proclaimed to bring with it, has not appeared.
Rather, on the contrary, municipalities, especially the smallest in terms of budget,
have remained subject to the resources and the allocation of the same provided by
the central government, a situation that perpetuates their low levels of local
development.
REFERENCES
Buchanan, J. H. (1993). Economía Constitucional. Madrid: Instituto de Estudios
Fiscales.
Caballero, C.,
Galvis, D. & García M. (2012). Proyecto instituciones ad hoc para municipios en Colombia: intervención
ad hoc en municipios
colombianos de acuerdo con indicadores sociales. Bogotá:
Cifras & Conceptos S.A.
Clavijo, S., Vera, A. &
Vera, N. (2013). Estructura
fiscal de Colombia y ajustes requeridos. Bogotá: Asociación Nacional de Instituciones
Financieras.
Departamento Nacional de Planeación –DNP-. (2008). Técnicas para el análisis de la gestión financiera de las entidades territoriales. Bogotá: DNP.
Departamento Nacional de Planeación –DNP-. (2011). Desempeño fiscal de los departamentos y municipios: 2011. Bogotá: DNP.
Fondo Monetario Internacional –FMI- (2001). Manual de estadísticas de las finanzas públicas. Washington: FMI.
Fondo Monetario Internacional –FMI- (2001). Manual de programación financiera. Washington: FMI.
Giraldo, C. (2009). Finanzas públicas en América latina. La economía política. Bogotá: ESAP, Ediciones desde Abajo.
Herrera, A. (2003). Régimen presupuestal de los municipios en Colombia. Revista del Derecho, (19).
Iregui, A., Ramos, J. & Saavedra, L. (2001). Análisis de la descentralización fiscal en Colombia. Documento de trabajo. Bogotá: Banco de la República.
Ley 617 de 2000. República de Colombia.
Ley 715 de 2001. República de Colombia.
Ley 1473 de 2011. República de Colombia.
Lozano, I. (2009). Caracterización de la política
fiscal en Colombia y análisis de la postura frente a la crisis internacional. Borradores de
Economía, 1-31.
Piketty, T. (2014). Capital
in the twenty-first century. London: The Belknap Press of Harvard University
Press.
Rincón, H., Ramos, J. & Lozano, I. (2004). Crisis
fiscal actual: diagnóstico y recomendaciones. Borradores de Economía , 1-112.
Restrepo, D. (2004). De la descentralización a la regionalización. Nuevo escenario de guerra y oportunidad para la paz. Revista Eure, 29(89).
Rincón, H., Ramos, J. & Lozano, I. (2004). Crisis
fiscal actual: diagnóstico y recomendaciones. Borradores de Economía , 1-112.
Rosas, G.
(1996). Informe de la Comisión de
Racionalización del Gasto y de las Finanzas Públicas. Bogotá: s.n.
Tiebuot, C.M. (1956, oct.). A pure theory of local
expenditures. Journal
of Political Economy.
Wiesner, E. (1997). La efectividad de las políticas públicas en Colombia. Un análisis neoinstitucional. (1 ed.). Bogotá: Tercer Mundo.
Wiesner, E. (2006). El orígen político del déficit fiscal en Colombia: contexto
institucional 20 años después. Documento CDE 2004-20 . Bogotá: s.n.
Wooldirdge, J. (2010). Econometric analysis of cross section and
panel data. Cambridge, Massachusetts: The MIT Press.
*Professor, School
of Economics Universidad Pedagógica y Tecnológica de
Colombia. siervo.delgado@uptc.edu.co
** Economic Studies Analyst, Banco de la República, Tunja branch.
laceroji@banrep.gov.co
[1] To this end the Technical Manual for the Analysis of the Financial
Management of Territorial Entities was followed, a document of the National
Planning Department- DNP-(2008).