Decentralization and bailouts in Colombia

Descentralization has meny benefits, but it can also weaken fiscal discipline, specifically, expectations on the possibility of a bailout by central government create incentives for fiscal misbehavior, fiscal discipline does not pay because it carries a smaller expected bailout. In Colombia the subs...

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Detalles Bibliográficos
Autores Principales: Echavarría, Juan J., Rentería, Carolina, Steiner, Roberto
Publicado: 2015
Materias:
Acceso en línea:http://hdl.handle.net/11445/827
Descripción
Sumario:Descentralization has meny benefits, but it can also weaken fiscal discipline, specifically, expectations on the possibility of a bailout by central government create incentives for fiscal misbehavior, fiscal discipline does not pay because it carries a smaller expected bailout. In Colombia the substantial transfer form the central government to the sub-regions created structural expenditure pressures and irresponsible behavior in terms of debt (mainly ñoans from banks), brought the departments into default and forced the central government to bail them out.