Loayza, Norman V.Rigolini, JameleCalvo-Gonzalez, Oscar2012-03-192012-03-192011-08-01https://hdl.handle.net/10986/3525In the past three decades, emerging countries have gone through extensive decentralization reforms. Yet, there are no studies assessing quantitatively the relative importance of various factors known to affect the success of decentralization. This paper builds on a comprehensive dataset the authors constructed for Peru, which merges municipal fiscal accounts with information about municipalities' characteristics such as population, poverty, education, and local politics. The paper then analyzes the leading factors affecting the ability of municipalities to execute the allocated budget using complementary methodologies, from least squares to quantile regression analyses. According to the existing literature and the Peruvian context, the analysis divides these factors into four categories: the budget size and allocation process; local capacity; local needs; and political economy constraints. Although all four factors affect decentralization, the largest determinant of spending ability is the adequacy of the budget with respect to local capacity. The results confirm the need for decentralization to be implemented gradually over time in parallel with strong capacity building efforts.CC BY 3.0 IGOACCOUNTABILITYAGGREGATE EXPENDITURESAGGREGATE FISCALALLOCATIONBANK POLICYBUDGET ALLOCATIONSBUDGET CONSTRAINTSBUDGET EXECUTIONBUDGET EXPENDITUREBUDGET SIZEBUDGETARY ALLOCATIONBUDGETARY PROCESSBUDGETINGBUSINESS CYCLECAPACITY BUILDINGCAPACITY CONSTRAINTSCAPACITY-BUILDINGCAPITAL BUDGETCAPITAL EXPENDITURECAPITAL EXPENDITURESCAPITAL INVESTMENTCAPITAL INVESTMENTSCENTRAL GOVERNMENTCETERIS PARIBUSCOEFFICIENTSCOMMODITY PRICESCOMPARATIVE ANALYSISCONSTITUTIONAL REFORMCURRENT EXPENDITURESDECENTRALIZATIONDECENTRALIZATION PROCESSDECENTRALIZATION PROGRAMDEMOCRACYDEVELOPING COUNTRIESDISTRICTDUMMY VARIABLEDUMMY VARIABLESECONOMIC ACTIVITYECONOMIC DEVELOPMENTECONOMIC GROWTHECONOMIC POLICYEXPENDITURE DATAEXPENDITURESFIDUCIARY REQUIREMENTSFINANCIAL MANAGEMENTFINANCIAL MANAGEMENT SYSTEMFINANCIAL RESOURCESFISCAL ACCOUNTSFISCAL DECENTRALIZATIONFISCAL EXPENDITUREFISCAL EXPENDITURESFISCAL FEDERALISMFISCAL NEUTRALITYFIXED INVESTMENTGOVERNMENT PERFORMANCEHARD BUDGET CONSTRAINTSHUMAN RESOURCESINCUMBENTINSTITUTIONAL CAPACITYINTERNATIONAL BANKINVESTMENT PROJECTSLEGITIMACYLIVING STANDARDSLOCAL ADMINISTRATIONLOCAL CAPACITYLOCAL GOVERNMENTLOCAL GOVERNMENTSMANDATESMAYORMAYORSMINISTRY OF ECONOMYMUNICIPALMUNICIPAL EXPENDITURESMUNICIPAL GOVERNMENTSMUNICIPAL LEVELMUNICIPALITIESMUNICIPALITYNATURAL RESOURCE EXPLOITATIONNATURAL RESOURCESOIL WINDFALLSOVERSIGHT MECHANISMSPOLICY CHOICESPOLICY MAKERSPOLICY REFORMPOLITICAL BUSINESS CYCLEPOLITICAL COMPETITIONPOLITICAL ECONOMYPOLITICAL SCIENCEPOLITICIANSPOSITIVE IMPACT OF DECENTRALIZATIONPOVERTY MAPSPOVERTY RATEPOVERTY REDUCTIONPROVINCEPROVINCESPUBLIC ECONOMICSPUBLIC EXPENDITUREPUBLIC EXPENDITURE DATAPUBLIC MANAGERSPUBLIC SECTORPUBLIC SERVICEPUBLIC SERVICE DELIVERYPUBLIC SPENDINGRETURNSREVENUE SHARINGSMALL MUNICIPALITIESSOFT BUDGET CONSTRAINTSSUB-NATIONALSUB-NATIONAL GOVERNMENTSTOTAL EXPENDITURETOTAL EXPENDITURESTOTAL SPENDINGTYPES OF EXPENDITURESURBANIZATIONVILLAGESWorld Bankhttps://doi.org/10.1596/1813-9450-5763