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Conceptual Framework: The Necessary Link between Political Competition, Local State Capacity, and Policy Outcomes

In the literature different governance factors have been considered to influence the provision of water and education, such as transparency, accountability, technical and fiscal capacity, quality of the local bureaucracy, participatory mechanisms, competitive political processes, among others (Andrews and Shah 2003; Krause 2007). In this paper, we focus on the effect that national electoral competition has on fiscal effort at the local level and thereby on public service delivery.

There are various arguments in the literature that tie local political competition to better policy outcomes (Weingast 2009; Besley et al. 2010). The basic argument is very simple—the more the political actors with real chances to win office, the better should be their performance and quality of candidates to avoid being ousted from power. The presence of an opposition too plays an important role in the provision of information to the citizenry, lowering the probability of the misuse of public resources.

However, for political competition to make a difference at the local level, political actors need to have enough autonomy for their decisions to make a difference in outcome. If there is no autonomy and transfers are only weakly related to sub-national income growth, the incentives for better performance can rapidly vanish. In Weingast’s words, “Elections in the presence of fiscal dependence and opportunism become a means of political control rather than of citizen expression” (Weingast 2009, 280). In other words, under a soft budget constraint, politicians would be able to spend more than they collect, and by doing so, they could effectively protect or appeal to a certain constituency that they consider pivotal to their ascent in their political careers.

The budget constraint is also dependent on the availability of resources for the national government, which does not entail asking for more taxes from the citizens at the local level. When the regional or national elite can help ease the budget constraints, their role becomes more significant in determining policy outcomes. This dependency allows for the national elite to control the local elite, forcing the latter to make sub-optimal decisions for their population, or provide them with additional resources in exchange for political rents and patronage. As a council member interviewed clearly stated,

A good administration in this municipality is done with gestion.11 That is why I said we would be among the best Santa Barbara has had, as we have a direct connection with Leon Dario, [the brother of the elected mayor], in the Chamber of Deputies [former mayor, elected three times nonconsecutively]. Also, on top of that, he belongs to the Third Committee, which you already know is the one that decides over the Budget and that gives him a number of advantages, like it is being the rapporteur, for which they are given some additional incentives compared to other members.12

There are costs associated with each of the two options to soften the budget constraint. Lobbying for additional national resources implies an electoral compromise and exchange for support with the regional leader who has the leverage to deliver additional resources. Possibly too, the mayor would need to prioritize the legislator’s electoral interests instead of his own. Also, if the municipality is controlled by someone from among the regional elite, that person will take advantage of this closeness to extract whatever resources possible to deliver to his or her electorate. In places where there is greater competition for the votes, and consequently ties to the regional political network are thinner, the local politician may have reduced chances of gaining access to such resources. As competition increases at the regional level for national office, politicians too are required to maximize their vote share, and may opt for a campaign that appeals to voters by providing national public goods and policies instead of localized or appropriable goods (Cox 1987).

Local politicians can also choose to increase their resources by increasing their fiscal revenue. An increase in property and land tax—namely the updating of the local cadaster—is one of the most important fiscal policy decisions for a municipality to increase its resources and ease its budget constraint. Although updates are mandatory at least once every five years, they can even be done as often as every year. Local politicians consider the decision to update a difficult one, with associated costs such as the loss of popularity, which could be significant at an early stage of one’s career. This update—a clear action of the fiscal effort—determines the property and land tax base, and therefore its evolution. The lack of update brings about an undervaluation of the local properties in the local cadaster and consequently may lead to a tax collection below its potential.

Thus, in municipalities where politics would be captured by one or a few groups, politicians would most likely lobby for more national resources instead of raising taxes. Consequently, instead of improving their career chances through the provision of public goods, they would provide public goods and rents through client-based practices that do not necessarily match the needs.

When asked about the cadastral update, a local politician from El Penol, a small town in Antioquia that frequently updates the cadaster, argued,

People do not like that the administration updates the local cadastre. It is clearly an unpopular measure and if you do it as a mayor you lose popularity. But you have to do it, you have to respect the law and do it.

When asked about the reasons as to why updating the local cadastre every five years was not done by a great number of municipalities despite their obligation to do so, the Mayor of Monterrey, Casanare, said:

If you tax newly established enterprises, you can do it and you will improve the collection. Despite the update, evasion is fairly generalized and it is difficult to force people to pay. Nonetheless, if you tell me I am required to update, I will do it only in the first year. I am finishing my term, and I think it would be political suicide to do it at another time.

Notwithstanding the political costs to update, it has been shown that the benefits to the municipality, as mentioned previously, are far greater than the ones received from other sources (Perry and Olivera 2009). For example, it has been shown that municipalities with royalties do not have better social indicators than those without royalties despite the significant difference in resources (Perry and Olivera 2009; Economia Urbana 2012). Hence, money that is collected from the citizenry may prove more beneficial in terms of the outcomes produced than money acquired from other sources. Thus, when local governments raise more local resources, have some autonomy to optimize their finances, and are able to impact policy outcomes, political competition could explain improvements in policy outcomes. Since local politicians are to blame if things go wrong, incentives are aligned for both politicians and voters to make an additional effort in contributing to the public good, as well as exercising their right to take stock of their performance.

On evaluating a program in Brazil that invests in the modernization of local tax administrations, Gadenne (2011) found that the increase in local taxes, prompted by the program, brought up educational enrollment levels as well as the number of schools built with greater efficiency than did central governments transfers. Gadanne stated that since citizens have better information on taxes than on transfers, rent-seeking opportunities of politicians are considerably diminished, leading to better spending of the resources.

In Colombia, as we have observed in the previous sections, municipalities had a soft budget constraint until 1997, the year in which significant restrictions were imposed on their capacity to be in debt. Following this, the municipalities, in order to increase their execution capacity, needed to increase their fiscal capacity. Thus, we argue that national political competition at the local level affects both the effort of the municipalities to increase their autonomy by raising more revenue and the decisions necessary to improve the service delivery. Local fiscal capacity depends not only on the wealth and economic activity of the municipality, but also on the fiscal effort, defined as policy actions that the local government undertakes to augment local revenues. The fiscal dimension of the State—understood as its ability to tax income and wealth—has recently been regarded as fundamental for the delivery of public goods, policies promoting development, and the implementation of distributive policies (Careaga and Weingast 2003; Besley and Persson 2010; Cardenas 2010). In this paper we allege that local fiscal capacity is also essential for the delivery of local public goods within a context of political and fiscal decentralization as experienced by Colombia after 1991. Thus, to understand the interplay between fiscal capacity and political competition it is crucial to understand why the improvement of the welfare of the population varies within and across Colombian municipalities.

We consider two policy sectors that are crucial to the welfare of the population: education and water. In both these sectors, the municipality plays a leading role vis-a-vis their performance. In education, for example, mayors are in charge of setting need-based priority levels in schools with regard to investment, as well as the type of investment, whether the need is for infrastructure, educational material, feeding programs, or for more teachers, to mention just a few. Equally, in the water sector, the mayor is responsible for taking a decision as to who will provide the service, who will monitor the provider, and whether the coverage should be increased to new areas of the municipality. The council and the mayor have the added responsibility of defining the levels of cross-subsidy from high- to low-income levels.

The following section gives the methodology and measurement strategy to establish the link between political competition and local state capacity (measured as fiscal effort), and also to establish the link between local state capacity and service delivery outcomes.

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