Does Participatory Budgeting have an Effect on the Quality of Public Services? The Case of Peru’s Water and Sanitation Sector
Miguel Jaramillo and Lorena Alcazar
Since 2004, the government of Peru has implemented a process of participatory budgeting (PB), which is mandatory for every sub-national government.1 PB is a process oriented to democratizing and making more transparent public budgeting by creating formal channels of participation. At least in theory, it promotes the inclusion of politically and economically weak sectors of society in the budget allocation bargaining process.
PB is part of Peru’s decentralization process. According to the Law for the Participatory Budget Process, its objective is to design “a mechanism to assign public resources in a just, rational, efficient, effective, and transparent manner, so as to strengthen the relationship between the state and civil society.” It is a tool to generate greater voice for citizens and accountability by public officers in matters related to budget allocation. PB in Peru is (i) backed by a constitutional norm, (ii) implemented at regional, 
provincial, and district levels, and (iii) discretional in terms of the amount of spending channeled through this mechanism.
The structure of investment budget across government levels in Peru enhances the power of PB. For the year 2009, 56 percent of the total investment budget was under the administration of municipalities, 22 percent was in the charge of regional governments, and only the remaining 22 percent was managed by the central government. Although available public budget data do not allow us to identify the share of the budget coming from PB at the regional and municipal levels, we can say that in our sample the importance of PB at the municipal level is 27 percent of the investment budget in the year 2009. Thus, PB is an important part of public investment at the sub-national government levels, which, in turn, explains about three-quarters of total public investment in Peru.
PB may have an effect on the composition of investments by subnational governments, prioritizing projects in some specific sectors. In effect, the World Bank (2011) argued that PB promotes a pro-poor logic in the allocation of public resources, prioritizing basic infrastructure. Prioritizing basic infrastructure projects is only a first step toward improving the welfare of the population, just as it is important to have an efficient and inclusive service delivery system. In this study we focus on the effects of PB on the provision and quality of service delivery; in particular, it looks at effects on water and sanitation coverage and quality of service delivery.
Conceptually, PB should have an effect on the quality of public services through three channels. First, PB provides greater voice to the population, which, in turn, puts pressure on local governments to provide better public services. Second, PB prioritizes investment in basic services, leading to higher coverage and quality of services. Third, as people prioritize investments in certain services, they are better motivated to monitor their quality. However, several conditions need to be fulfilled in order for these mechanisms to work. First, poor people, who are in greater need of basic services but at the same time face the largest costs of participation, do participate. Second, people have the capacity and means to adequately identify needed investments and to monitor service quality. Third, mechanisms of accountability do exist, so municipality representatives are responsive to people’s needs expressed in the PB. Fourth, municipalities have both the technical capacity and the resources to carry out the prioritized investments. This is particularly key when investment is as complex as in the water and sanitation sector. In sum, it is not clear that PB may live up to its promise of contributing to improvements in basic public services.
Using econometric techniques, we analyze the link from PB to coverage and water service quality indicators, showing that there is no evidence of a positive relationship. In effect, we do not find a statistically significant relation between PB and water and sanitation coverage and service quality indicators (mainly water continuity), regardless of whether they are measured in levels or in changes. We complement and reinforce these results with a qualitative analysis based on interviews with relevant actors in the PB process and the water sector.
The organization of the text is as follows. Following this introduction, Sect. 2 presents a conceptual discussion of the potential effects of PB on coverage and quality of public services. Section 3 summarizes the characteristics of the PB process in Peru and the main institutional characteristics of the water sector. Section 4 discusses the methodological issues around identifying the effect of PB on quality of services. Section 5 presents descriptive statistics for the variables included. Section 6 explores socio-demographic and political determinants of PB intensity. Section 7 presents and discusses the results of the econometric analysis, bringing in also the qualitative fieldwork findings. Section 8 concludes and discusses policy implications of our findings. 
government officials face. Specifically, it is expected that PB will generate greater accountability for them (Genro and Souza 1997; Utzig 1996; Serageldin et al. 2003; Zamboni 2007; World Bank 2011; ). However, other factors will also affect public service governance: information problems (missing or asymmetric information), role of political organizations and special interest groups, technical capacities of the participatory agents, technical skills in the public sector, coordination problems among different public agencies, and the political economy of the water sector and other public services investment decisions. Thus, in order to assess the effects of PB, one needs to control not only for the socio-economic characteristics of the communities involved, but also for the local political context, and the technical capabilities in local governments and public services providers.
Actual coverage and quality of public service provision, such as that of drinking water, may be below citizens’ expectations if the operator is accountable only to government agencies, as supply-driven approaches to service delivery may generate services that are inefficient and unresponsive to local needs (Reuben and Belsky 2006). The consequences of these failures are of particular importance to the poor, who typically lack effective mechanisms to ensure that their voice is heard in service delivery. Therefore, the success of service delivery depends on whether institutions of service provision are accountable to citizens (Ahmad et al. 2004).
The participation of ordinary citizens in the prioritization of service delivery investments increases service users’ opportunities to express their demands through voice as well as to make the sub-national government more accountable in service provision. Through PB, a principal (service users) attempts to secure services from an agent (service providers). Agents are expected to hide the information that principals require to monitor their performance. Through PB, the principal has the opportunity to demand better services, reducing the transaction costs of individual service users in monitoring service delivery. Besides enhancing the quality of the provision of public goods, greater accountability of service providers and policy makers can be used, if the poorer do participate, to extend service access to the marginal and excluded groups in society. Thus, investments made through PB may be beneficial for the poor.
Starting from the experience of Porto Alegre, Brazil, in 1989, participatory experiences have expanded throughout Latin America (Goldfrank and Schneider 2006b). A recent balance of these experiences suggests that despite significant accomplishments in places as diverse as small rural villages or large cities, PB has not had widespread local success in
encouraging citizen participation, fiscal transparency, and effective municipal government (Goldfrank 2006a). The experience is quite diverse, and important factors for success include committed support by the authorities, institutions providing technical and financial support, and a tradition of collaboration among civil society organizations. A recent analysis of the experience of Porto Alegre stresses the advantages and limits of PB (World Bank 2008). Participation has indeed been enhanced and the process is socially quite legitimated, though certain groups remain underrepresented because of insufficient incentives. The interface between participation and budget management is complex and there is no evidence that PB has contributed to better fiscal management. In line with this mixed picture, two recent publications find diverging results with regard to the effects of PB in Brazil. Gonsalves (2009) highlights the pro-poor results of PB in Brazil, finding that its inception is significantly associated with greater spending in health and sanitation, and also correlated with lower infant mortality. On the other hand, Boulding and Wampler (2010), looking at Brazil’s largest 220 cities, find only small increases in spending in health and education associated with PB, and no evidence that these increases lead to measurable improvements in the lives of ordinary Brazilians.
A much smaller literature has linked participatory mechanisms to water service provision, despite the importance of institutional arrangements for the latter (Straub 2009). A few papers have looked at the link between participatory mechanisms and water provision. Tankha and Fuller (2009) find that these kinds of experiences are expanding in India and Brazil, but suggest that more attention is needed on administrative reforms and capacity building. Also, others like Beall et al. (2011) and Neaera and Keck (2009) look at process measures and opinions of participants to suggest a positive link between participatory mechanisms and water provision. However, to our knowledge, no attempt has been made to quantitatively link participatory mechanisms to water service coverage and quality measures.
-  M. Jaramillo (*) • L. Alcazar Group of Analysis for Development—GRADE, Lima, Peru © The Author(s) 2017 105 G. Perry, R. Angelescu Naqvi, Improving Access and Quality ofPublic Services in Latin America, Latin American Political Economy, DOI 10.1057/978-1-137-59344-3_4
-  Conceptual Framework Recent empirical research in the school of new institutionalism has establishedthat local institutions, whether formal or informal, not only play a fundamental role in mediating and filtering the effects of the central government’spolicies, but can also solve the problems of collective action (Ostrom 1990;Ostrom et al. 1994; Oakerson 1999; McGinnis 1999; Gibson et al. 2000;Olson 1965). Our study hypothesizes that a key determinant of public serviceperformance is the kind of institutional arrangements that seek to overcomethe problems of managing a public good. The reforms of decentralizationand participatory mechanisms represent, at least on paper, an effort to establish a government system more responsive to local requirements for effectiveservice provision at the local level, generating increased opportunities for theorganized participation of the population. This process is uneven in different countries. In the case of Peru, this is a relatively incipient process. In thiscontext, the study seeks to identify the role played by the local formal participatory budget process in the quality of services that are provided throughpublic budgets. The specific focus is on coverage and quality of water services. Participatory mechanisms, such as PB, may influence public serviceoutcomes by changing the incentives political actors, policy makers, and