The power of taxation: sources of revenue and local development in Colombia

About this event

Is the limited effectiveness of decentralization in developing countries due to the lack of accountability of transfers and royalties or is it the result of more general weak administrative capacity and low levels of political competition. In other words, does unearned revenue provide bad incentives or are local governments simply not good enough? Answering this question is an important step if we want decentralization to work. Using municipal data from Colombia for the period 2005-2012 I compare the effect of increases in tax revenue to that of oil and coal windfalls on public good provision and development indicators. I use a national policy of cadastral updating as a source of variation in property tax revenue and I use fluctuations in the international prices of oil and coal as a source of variation in windfall revenue. I find that updating the local cadastre has a larger effect on educational enrollment and infant mortality than an oil price shock, despite the former having a much smaller fiscal impact.