The Determinants of Central vs. Local Government Investment: Institutions and Politics Matter

LSE Development Studies Institute Working Paper No. 02-38

48 Pages Posted: 14 Mar 2003

See all articles by Jean-Paul Faguet

Jean-Paul Faguet

London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP)

Date Written: October 24, 2002

Abstract

This paper uses econometric models of public investment to investigate the institutional and political determinants of central vs. local government decision-making. I use a remarkable database from Bolivia's recent, radical decentralization program. I find that local government policy decisions are progressive both economically and in terms of need, and largely determined by a competitive interest group dynamic which provides poorer citizens, as well as private sector firms and civic institutions, with political voice. This ensures that accountability is binding for elected officials. By contrast centralized investment - more insulated from grass-roots pressures - is regressive in both dimensions. The results suggest a healthy picture of local democracy in which voters are able to influence local government through both their civil institutions and the electoral mechanism. Where local government works well citizens have voice, providing an effective counterweight to the power of private firms and government's own politico-bureaucratic interests.

Keywords: decentralization, local government, participation, institutions, politics, Bolivia

JEL Classification: D72, D73, H41, H42, H72, O18

Suggested Citation

Faguet, Jean-Paul, The Determinants of Central vs. Local Government Investment: Institutions and Politics Matter (October 24, 2002). LSE Development Studies Institute Working Paper No. 02-38, Available at SSRN: https://ssrn.com/abstract=373601 or http://dx.doi.org/10.2139/ssrn.373601

Jean-Paul Faguet (Contact Author)

London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP) ( email )

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HOME PAGE: http://www.lse.ac.uk/Depts/destin/faguetjp.html

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