Handbook on Subnational Governments and Governance 1803925361, 9781803925363

Citation preview

HANDBOOK ON SUBNATIONAL GOVERNMENTS AND GOVERNANCE

ELGAR HANDBOOKS IN PUBLIC ADMINISTRATION AND MANAGEMENT This series provides a comprehensive overview of recent research in all matters relating to public administration and management, serving as a definitive guide to the field. Covering a wide range of research areas including national and international methods of public administration, theories of public administration and management, and technological developments in public administration and management, the series produces influential works of lasting significance. Each Handbook will consist of original contributions by preeminent authors, selected by an esteemed editor internationally recognized as a leading scholar within the field. Taking an international approach, these Handbooks serve as an essential reference point for all students of public administration and management, emphasizing both the expansion of current debates, and an indication of the likely research agendas for the future. For a full list of Edward Elgar published titles, including the titles in this series, visit our website at www​.e​-elgar​.com​.

Handbook on Subnational Governments and Governance Edited by

Claudia N. Avellaneda O’Neill School of Public and Environmental Affairs, Indiana University Bloomington, USA

Ricardo A. Bello-Gómez School of Public Affairs and Administration, Rutgers University–Newark, USA

ELGAR HANDBOOKS IN PUBLIC ADMINISTRATION AND MANAGEMENT

Cheltenham, UK • Northampton, MA, USA

© The Editors and Contributors Severally 2024

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical or photocopying, recording, or otherwise without the prior permission of the publisher. Published by Edward Elgar Publishing Limited The Lypiatts 15 Lansdown Road Cheltenham Glos GL50 2JA UK Edward Elgar Publishing, Inc. William Pratt House 9 Dewey Court Northampton Massachusetts 01060 USA A catalogue record for this book is available from the British Library Library of Congress Control Number: 2023951984 This book is available electronically in the Political Science and Public Policy subject collection http://dx.doi.org/10.4337/9781803925370

ISBN 978 1 80392 536 3 (cased) ISBN 978 1 80392 537 0 (eBook)

EEP BoX

Contents

List of contributorsviii Introduction to the Handbook on Subnational Governments and Governance xi Claudia N. Avellaneda and Ricardo A. Bello-Gómez PART I

DIMENSIONS OF SUBNATIONAL GOVERNANCE

1

Fiscal aspects of subnational governments Jorge Martínez-Vázquez, Eduardo Sanz-Arcega, and José Manuel Tránchez-Martín

2

Innovation in sub-national governments David B. Audretsch

21

3

Subnational political tensions Kent Eaton

28

4

Provision and production of public services by local governments Milagros Álvarez-Verdugo and Germà Bel

42

PART II

2

SUBNATIONAL GOVERNANCE IN LATIN AMERICA

5

The role of subnational governments in international relations: paradiplomacy in Brazil Marylis Fantoni and Claudia N. Avellaneda

6

Decentralization in Bolivia: popular support for regional autonomy Alissandra T. Stoyan

7

Unbalanced multilevel governance in Colombia: fiscal federalism and political bargaining with weak administrative decentralization Santiago Leyva, Pablo Sanabria-Pulido, and Ricardo A. Bello-Gómez

89

8

The link between politics and interacting administrative capacity: the case of citizen participation in Ecuador Julio C. Zambrano-Gutiérrez

107

9

Subnational governance in Mexico: the unending persistence of dependency Juan Cruz Olmeda

122

10

A slow-moving crisis: the challenges of local democratic governance in Peru Jami Nelson-Nuñez and Fiorella Vera-Adrianzén

137

v

57 70

vi  Handbook on subnational governments and governance 11

Intergovernmental relations and decentralization in Chile: the inertia of centralism and functionalism Daniel Cravacuore, Egon Montecinos, and Pablo Sanabria-Pulido

151

PART III SUBNATIONAL GOVERNANCE IN ASIA 12

Subnational government and governance in China Jianzi He and Yijia Jing

166

13

Subnational governance in India: pseudo-federalism and unity in tension Taha Hameduddin

180

14

Japan’s local governments and governance under population decline Kohei Suzuki

193

15

Korean regional inequality in subnational grant distribution toward nonprofits Jongmin (Min) Lee

208

16

Intergovernmental fiscal transfers and local resource generation in Philippine provinces Aileen V. Lapitan and Marriz M. Garciano

218

17

Religion and subnational public policy: accommodation of minority religious practices in the post-communist Muslim republics Renat Shaykhutdinov

232

PART IV SUBNATIONAL GOVERNANCE IN AFRICA 18

The future of regional governance in Ghana Dennis A.K. Penu

19

The municipal finances and challenges of municipal taxation in post-revolutionary Tunisia Salih Yasun

PART V

249

266

SUBNATIONAL GOVERNANCE IN EUROPE

20

Subnational governments and governance in Estonia: a paradoxical path of re-centralization despite strong local autonomy Ringa Raudla

286

21

Balancing cooperative federalism with local autonomy: subnational governments and governance in Germany Peter Eckersley

299

22

Poland: rolling back of the decentralized system? Paweł Swianiewicz

312

Contents  vii 23

Rural-urban connectivity through multi-level governance: a review of subnational governments in Romania Cristina Maria Stănică and Viorel I. Stănică

24

Portugal: the resistance against European Union multilevel governance José M. Magone

342

25

Russian federalism, blame defection, and regime stability Regina Smyth and Aidan Klein

358

26

Subnational governance in Spain Eloísa del Pino and César Colino

375

27

Conclusion: worldwide challenges for subnational governance Ricardo A. Bello-Gómez and Claudia N. Avellaneda

393

327

Index400

Contributors

Milagros Álvarez-Verdugo, Associate Professor of Public International Law, Law School, Universitat de Barcelona, Catalonia-Spain. David B. Audretsch, Professor, O’Neill School of Public & Environmental Affairs, Indiana University, USA and Department of Entrepreneurship and Innovation, University of Klagenfurt, Austria. Claudia N. Avellaneda, Paul H. O’Neill Professor and Fisher Faculty Fellow, O’Neill School of Public and Environmental Affairs, Indiana University Bloomington, USA. Germà Bel, Professor of Economics and Public Policy, School of Economics and Business, Universitat de Barcelona, Catalonia-Spain. Ricardo A. Bello-Gómez, Assistant Professor, School of Public Affairs and Administration (SPAA) at Rutgers University–Newark, USA. César Colino, Associate Professor of Political Science and Public Administration, Faculty of Political Sciences and Sociology, National Distance-Learning Education (UNED), Spain. Daniel Cravacuore, Director, Territorial Development Center, National University of Quilmes, Argentina. Eloísa del Pino, Senior Researcher, Institute of Public Goods and Policies (IPP), Spanish National Research Council (CSIC), Spain. Kent Eaton, Distinguished Professor of Politics, University of California, Santa Cruz, USA. Peter Eckersley, Associate Professor in Public Policy and Management, Nottingham Trent University, UK; and Research Associate, Leibniz Institute for Research on Society and Space, Germany. Marylis Fantoni, PhD student, Paul H. O’Neill School of Public and Environmental Affairs, Indiana University, USA. Marriz M. Garciano, University Researcher, Center for Strategic Planning and Policy Studies, College of Public Affairs and Development, University of the Philippines Los Baños, Philippines. Taha Hameduddin, Assistant Professor, Martin School of Public Policy and Administration, University of Kentucky, USA. Jianzi He, Assistant Professor, Institute for Global Public Policy, Fudan University, China. Yijia Jing, Dean of Institute for Global Public Policy and Professor of School of International Relations and Public Affairs, Fudan University, China. Aidan Klein, PhD candidate, Department of Political Science, Indiana University, USA. viii

Contributors  ix Aileen V. Lapitan, Assistant Professor and Director, Center for Strategic Planning and Policy Studies, College of Public Affairs and Development, University of the Philippines Los Baños, Philippines. Jongmin (Min) Lee, PhD student, Paul H. O’Neill School of Public and Environmental Affairs, Indiana University, USA. Santiago Leyva, Professor in Public Administration, Area of Policy and Development, EAFIT University, Medellín, Colombia. José M. Magone, Professor for Regional and Global Governance at the Department of Business and Economics, Berlin School of Economics and Law, Germany. Jorge Martínez-Vázquez, Regents Professor of Economics Emeritus, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University, USA. Egon Montecinos, Director, Regional Studies Center, Universidad Austral de Chile, Chile. Jami Nelson-Nuñez, Associate Professor, Chair of the Department of Political Science, University of New Mexico, USA. Juan Cruz Olmeda, Associate Professor, Center for International Studies, El Colegio de México, Mexico. Dennis A.K. Penu, Lecturer, International and European Law program, The Hague University of Applied Sciences and Researcher, International Institute of Social Studies, Erasmus University Rotterdam, The Netherlands. Ringa Raudla, Professor of Fiscal Governance, Ragnar Nurkse Department of Innovation and Governance, Tallinn University of Technology, Estonia. Pablo Sanabria-Pulido, Associate Professor, School of Public Administration, Florida Atlantic University, USA. Eduardo Sanz-Arcega, Tenured Lecturer of Economics, Faculty of Social Sciences and Social Work, University of Zaragoza, Spain. Renat Shaykhutdinov, Associate Professor of Political Science and Director of Graduate Studies, Florida Atlantic University. Regina Smyth, Professor of Political Science, Indiana University, USA. Cristina Maria Stănică, Assistant Teaching Professor, Northeastern University, USA. Viorel I. Stănică, Associate Professor and Vice Dean, Babes-Bolyai University, Romania. Alissandra T. Stoyan, Assistant Professor of Political Science, Texas Tech University, USA. Kohei Suzuki, Assistant Professor, the Institute of Public Administration, Leiden University, the Netherlands. Paweł Swianiewicz, Professor, the Institute of Spatial Management, Wrocław University of Environmental and Life Sciences, Poland.

x  Handbook on subnational governments and governance José Manuel Tránchez-Martín, Associate Professor (Tenured) of Economics, National University of Distance Education (UNED), Spain. Fiorella Vera-Adrianzén, Postdoctoral Fellow, Everyday Indicators for Policy Innovation Project, Santa Clara University, USA. Salih Yasun, Assistant Professor, Virginia Military Institute, USA. Julio C. Zambrano-Gutiérrez, Assistant Professor of Public Administration, Department of Politics and Public Administration, University of Konstanz, Germany.

Introduction to the Handbook on Subnational Governments and Governance Claudia N. Avellaneda and Ricardo A. Bello-Gómez

Subnational governments have gained an expanding role in designing, adopting, and implementing policies, and providing services to their communities. This trend emerged from a worldwide rise in regional and local autonomy which has affected not only federal countries, where subnational governments always have maintained constitutional powers, but also unitary systems which comprise most of the countries in the world. In some unitary countries, adoption and implementation of decentralization has given subnational jurisdictions more political, fiscal, and administrative tools to govern. In others, decentralization has been incomplete, impeding subnational governments from achieving fiscal, political, or administrative autonomy (Nielsen this volume). This Handbook focuses on subnational governments, given their increased role. Like Herrera Gutierrez (2015), we treat subnational government as a very broad concept that encompasses every level of government except the national level. Therefore, subnational governments include (a) the second level of government (state, province, region, or department); (b) the third level (municipalities, cantons, districts, or counties, etc.); and the fourth level (parishes, villages, townships, etc.). The broader term also allows us to address several dimensions, including legal, political, financial, and administrative, of subnational governments. Subnational governments can play a considerable role in economic development through service and delivery of public goods. However, the role of subnational governments tends to be largely ignored. As Iddawela, Lee, and Rodríguez-Pose (2021, p. 1282) posit, “[b]etter subnational governments are a powerful but often overlooked determinant of development in Africa.” Subnational governments also are potential clusters of innovation either through leadership (Campbell and Fuhr 2004, Audretsch this volume) or in response to structural changes such as consolidation (Fox and Gurley 2006, Suzuki et al. 2020). With the adoption of political decentralization, they also have become potential grounds for women and minority political representation (Escobar-Lemmon and Funk 2020, Barnes and Jones 2018, Avellaneda, Bello-Gomez, and Gomes 2022), delegation in governance (Avellaneda 2017, Bello-Gomez and Avellaneda 2022), party creation (Avellaneda and Escobar-Lemmon 2012). Finally, fiscal decentralization also has bestowed subnational jurisdictions with the power to collect their own revenues (Bahl and Bird 2008, Bird 2011, Martinez-Vazquez 2011, Smoke 2015a, b). Subnational governments face constant challenges, along with the potential for improving economic development, innovation, minority representation, revenue collection, among other opportunities. Some of these challenges are climate change (de Oliveira 2009); pandemic response (de Mello and Ter-Minassian 2022); poverty and inequality (Hofman and Cordeiro Guerra 2007 and Makreshanska-Mladenovska and Petrevski 2019); fiscal sustainability (Ter-Minassian 2007, Vammalle and Bambalaite 2021, de Mello and Ter-Minassian 2022); tax enforcement (Bahl and Bird 2008, Bird 2011, Martinez-Vazquez 2011, Smoke 2015a, b); intergovernmental conflicts (Eaton 2017); control and accountability issues (Baltaci and xi

xii  Handbook on subnational governments and governance Yilmaz 2006); unresponsiveness (Tausanovitch 2019); inefficient service delivery (Ahmad 2005); violence (Trejo and Ley 2018); immigration (Kössler 2012, Avellaneda and Olvera 2018; Frías-Vázquez and Arcila 2019); institutional weakness (Gustafsson and Scurrah 2019, Costa 2020); public distrust of government (Proszowska 2021); strengthening of civil society (Ito 2011, Bherer et al., 2016); unqualified managerial capacity (Avellaneda, Bello-Gomez and Olvera 2020); and democratic governance (Wilson et al. 2008, Grydehøj 2016), among others. These challenges call for improving subnational governments’ resilience (de Mello and Ter-Minassian 2022). Moreover, subnational governments are sensitive to external shocks and macroeconomic cycles. To address the above challenges and/or to enhance governmental performance, subnational governments may opt for different governance arrangements. Some tools available to subnational governments are institutional reforms, consolidation or amalgamation, fragmentation, decentralization, recentralization, coproduction, participatory budgeting, privatization, fiscal buffers, controlled borrowing tools, contracting out, hybrid service delivery, performance measurements, management performance, intergovernmental cooperation, e-government, and associativism, among others. Not all cases illustrated in this Handbook have adopted these governance tools. However, most of them have opted for one or several of them at certain point. This Handbook seeks to illustrate around the world some of the subnational governments’ administrative organization, political, economic, socio-demographic contexts, as well as their challenges and tools adopted to address their challenges, where applicable. By no means does this volume includes all the subnational governments in the world. Case selection was based on several criteria. First, we tried to include representation from all world regions. Word limitation prevented us from including more cases. Unfortunately, the African continent remains underrepresented despite our efforts. We reached out to several scholars without success. Second, we considered the scholastic attention a particular country’s subnational units have received, excluding those we believe have gained more academic attention, such as the United States, Canada, United Kingdom, and Australia. Third, selection also was based on heterogeneous representation in terms of regime type (democratic and non-democratic) and government systems (federal vs. unitary states). Fourth, the presented cases also vary in the type of subnational government level analyzed – local and intermediate levels. Finally, we also consider countries based on their population size and number of subnational units.

THIS HANDBOOK The Handbook has 28 chapters, including the editors’ introductory and concluding sections. The volume seeks to contribute in several ways. First, the Handbook highlights four key general dimensions of governance at the subnational governmental level. The dimensions include fiscal aspects (Martínez-Vázquez, Sanz-Arcega, and Tránchez-Martín, this volume); intergovernmental political tensions (Eaton, this volume); modes of provision and production of public services (Álvarez-Verdugo and Bel, this volume); and innovation (Audretsch, this volume). These key dimensions of subnational governance also may be addressed by some of the country’s case studies in parts II, III, IV, and V. Second, this volume seeks to explain both the differences and commonalities across subnational jurisdictions. Much is learned from comparing and contrasting. Comparative studies

Introduction  xiii are crucial for knowledge-building process by identifying cross-national patterns in institutions, structures, causal relations, among others (Fitzpatrick et al. 2011, Haque et al. 2021). Nevertheless, when comparing and contrasting, special attention to the unique context (e.g., political, economic, institutional, legal, environmental, technological, socio-demographic) (O’Toole and Meier 2015, Meier, Rutherford and Avellaneda 2017). For example, from the 23-country cases included in this volume, five of them (Brazil, Mexico, India, Germany, and Russia) are federations, while the remaining 17 cases are centralized unitary systems of government. Context also depends on the level of government. Twelve country cases (Brazil, Ecuador, Peru, Chile, China, Japan, Tunisia, Estonia, Poland, Romania, Portugal, and Russia) focus on local governments, while six cases (Bolivia, Mexico, South Korea, Ghana, Germany, and Spain) center on intermediate levels of government, and three (Colombia, India, and the Philippines) address both local and intermediate levels. Third, each contributing chapter focuses on one of two broad salient issues relevant to practitioners, scholars, think tanks, and international financial institutions. For instance, a common theme across country chapters relates to incomplete decentralization. That is the case in Peru, Chile, India, and Portugal. China, Estonia, and India illustrate amalgamation reforms at the local level. Challenges to fiscal, political, and administration autonomy are themes highlighted in the cases of Bolivia, Mexico, China, Philippines, Tunisia, and Poland (with recentralization). The role of intergovernmental relations becomes salient in the cases of Ecuador, Germany, and Spain. While India illustrates urban-rural challenges, Romania exemplifies how innovation rises from urban-rural partnerships. Political tensions are clearly illustrated by the case of Russia. Finally, the Brazilian chapter explains the evolution and the status of Brazilian cities’ international relations or paradiplomacy, while the South Korean chapter describes the survival of nonprofit organizations at the subnational level, and Ghana exemplifies the lack of citizens’ support for the intermediate level of government. The heterogeneity in policy area and dimension of governance should contribute to understanding the workings of subnational governments. Finally, we expect the Handbook to appeal to scholars whose research and teaching interests focus on subnational jurisdictions either in developing or developed countries, federal or unitary systems, centralized or decentralized governments, and democratic, semi-democratic, and nondemocratic regimes. Each country’s contribution will focus on one or several policy areas, one agency or several agencies, and be qualitative or quantitative in its analysis.

STRUCTURE OF THE HANDBOOK The Handbook is organized into seven parts, including an introduction, five substantive parts, and a conclusion. One of the fundamental features of subnational jurisdictions relates to intergovernmental relations, as well as their fiscal capacity and sustainability. Subnational governments also face constant challenges, many of which derive from political tensions with higher levels of governments, as well as deficiencies in organizational capacity. In dealing with this and other challenges, subnational jurisdictions also must innovate to find alternative policy solutions. Thus, Part I includes four chapters, each one addressing a different dimension of governance: fiscal aspects, political tensions, provision and production of service delivery, innovation, and religion and politics.

xiv  Handbook on subnational governments and governance In chapter one of Part I, Jorge Martínez-Vázquez, Eduardo Sanz-Arcega, and José Manuel Tránchez-Martín deal with the principles that guide an efficient decentralized fiscal governance design. Specifically, the authors enumerate the problems with designing (a) optimal assignment of expenditure responsibilities, (b) optimal revenue assignments, (c) intergovernmental transfers, and (d) borrowing and fiscal rules. Moreover, the authors explore the role and effect of formal and informal political institutions in enforcing fiscal governance rules. David B. Audretsch contributes in chapter four with a discussion of innovation at the subnational level. Given the relevance of organizational innovation, Audretsch provides an analysis of subnational governance and innovation. Specifically, within the locus of governance, he highlights the role of subnational governance in creating the institutional and policy context and instruments conducive to innovation and entrepreneurship. Kent Eaton, in chapter three of Part I, describes the political frictions between national and subnational governments along the vertical axis of governance. In doing so, he examines three global trends that have become key drivers leading to political tensions regardless of the countries’ differences. These drivers include decentralization, democratization, and liberalization. Eaton explains why countries experience intergovernmental conflict and contention. However, he also highlights the potential resolution of subnational political tensions, such as building both horizontal and vertical coalitions. In building these coalitions, the subnational stakeholders become key players in navigating tensions that decentralization has created. Milagros Álvarez-Verdugo and Germà Bel contribute to chapter four of Part I. Here, Álvarez-Verdugo and Bel clarify the distinction between provision and production by illustrating in the domain of intermunicipal cooperation. The authors analyze the cross-country differences in the provision and production of public services, giving special consideration to the cases of the United States and European countries. In doing so, they explain cross-country differences based on legal origins and administrative traditions. The chapter also discusses challenges posed by different combinations of production forms within the context of intermunicipal cooperation. Part II is dedicated to the subnational governments in Latin America. Six countries, Brazil, Bolivia, Colombia, Ecuador, Mexico, and Peru, will represent the region. The cases were selected based on several criteria: federal systems (Brazil and Mexico), unitary systems (Colombia, Bolivia, Ecuador, and Peru), considerable Indigenous population (Bolivia, Ecuador and Peru), experience with armed conflict (Colombia), and dollarization of the economy (Ecuador). Each author uses different approaches to achieve their chapters’ objectives. Some rely on a descriptive and qualitative approach, while others opt for a quantitative or a mixed methodological analysis. Despite the heterogeneity in the approach, country cases share key features about the subnational governmental level they are addressing. First, each chapter clarifies which subnational governmental level (local or intermediate or both) is being discussed. Second, each case discusses the administrative division of the respective country, as well as the method and the electoral rules to select or appoint the leaders of the studied subnational government units. Third, authors briefly discuss, when applicable, experience with (a) federalism and/or decentralization (fiscal, political, and administrative), (b) consolidation or fragmentation, and (c) performance management systems. Finally, authors will present discussions about public finance and functions of the studied subnational jurisdictions, party system, regime type, and level of democracy, number of units, and key demographic and socioeconomic indicators.

Introduction  xv Fantoni and Avellaneda contribute to this volume by addressing paradiplomacy of the Brazilian cities. Authors define paradiplomacy as “a local governance strategy, involving the participation of subnational governments in international relations.” They offer a historical overview of Brazilian local governments throughout the 20th century until now. Then, they provide a synthesis of the existing literature on paradiplomacy, highlighting its evolution and drivers. This is followed by a discussion of the current state of paradiplomacy in Brazilian cities. The authors rely on a municipal survey conducted across the 5,550 Brazilian municipalities. This survey explores municipal experience with paradiplomacy, its obstacles and effects. Fantoni and Avellaneda identify two key inhibitors of paradiplomacy, as reported by governmental officials. These inhibitors are lack of resources and organizational capacity. Finally, they suggest some opportunities and international resources from which Brazilian local governments may benefit. Alissandra T. Stoyan contributes to this volume with a description of the intermediate units or departamentos in Bolivia. She does so by describing the country’s decentralization process, giving particular attention to the legislation and departments’ demands for greater autonomy. Stoyan relies on data from the Regional Authority Index to describe the nature of decentralization at the Bolivian departmental level. Stoyan also offers a quantitative analysis to answer two research questions: Who supports decentralization of municipal and departmental governments in Bolivia? And how have these bases of support changed over time, particularly as Bolivia has adopted greater autonomy at the intermediate level? Stoyan uses data from the Latin America Public Opinion Project (LAPOP) to analyze Bolivians’ public opinion between 2006 and 2012. Leyva, Sanabria-Pulido, and Bello-Gómez introduce readers to a descriptive analysis of Colombia’s subnational governments (local and intermediate). They do so by describing the structure of Colombian subnational governments and their evolution of the intergovernmental relations (IGR). Leyva and colleagues assess whether decentralization has worked for Colombia's subnational units by showing how the reforms allowed to balance administrative weaknesses with a more prominent role for politicians. The authors also expand on the key problems and challenges of the Colombian public policymaking. Finally,they describe recent initiatives to correct the deficiencies and failures of the existing decentralization model. Julio C. Zambrano-Gutiérrez examines the Ecuadorian local governments by focusing on local citizen participation though itinerant cabinets. Itinerant cabinets are temporary units (colocations) of national agencies at the local level and across Ecuador. Through these itinerant cabinets, citizens can request public goods and services directly from the national authorities. These requests once processed by national agencies become citizen commitments. In this context, Zambrano-Gutiérrez explores the factors explaining the national government’s response to citizens’ requests from local communities. He empirically tests the effects of political and structural factors on governmental response to citizens’ requests. In answering this question, Zambrano-Gutiérrez relies on a data set derived from 202 municipalities between 2007 and 2015. In summary, the Ecuadorian case shows evidence of how politics influences the interacting administrative capacities of the national and subnational governments to boost citizens’ participation through filing of requests. In the Mexico chapter, Juan Cruz Olmeda argues that Mexican subnational governance can be fully understood without considering the political dynamics that shape the relationship between state and federal governments. In his contribution, Olmeda describes what Mexican state governments can and actually do in the political, fiscal, and policy domains, giving

xvi  Handbook on subnational governments and governance emphasis to the heterogeneity in states’ capacities. Olmeda also reviews the evolution of Mexican federalism, highlighting the prevalent centralistic political dynamic to explain why subnational governments were de facto subordinated to the center. This centrist trend changed once the Institutional Revolutionary Party (PRI) started losing ground at the subnational level in the 1980s, allowing for more decentralized policies that gave more responsibilities to subnational governments. Despite this change, Olmeda points out that due to political costs, subnational authorities fail to exercise fiscal autonomy and resist recentralization in different policy areas. Jami Nelson-Nuñez and Fiorella Vera-Adrianzén’s chapter about Peru’s local governments begins with an overview of the multilevel governance structure to map out how local governments are situated within the political system. The authors then detail how three deeply seated challenges interact to undermine accountability, representation, and government capacity at the local level. Nelson-Nuñez and Vera-Adrianzén offer a good description for each of these three challenges: the decentralization process, weak party system, and political instability. Finally, they explore how these challenges have reduced the effectiveness of policies meant to facilitate local governance. For the chapter dedicated to Chile, Cravacuore, Montecinos, and Sanabria-Pulido focus on local governments by delving into Chile’s intergovernmental relations structure. The authors highlight the high centralization pattern that has characterized Chile even worldwide. The Chilean case illustrates a “notable effort to establish an administrative decentralization model while neglecting key political issues necessary for regional autonomy and self-determination.” The authors describe the politico-administrative, socioeconomic, and financial aspects of the Chilean local governments and explore the experience with federalism and decentralization, the functions of subnational governments, and some political subnational system aspects. The authors emphasize Chile’s entrenched centralism and ongoing challenges in terms of IGR and select two cases to illustrate these challenges. Part III is dedicated to the subnational governments in Asia. Five countries, China, India, Japan, South Korea, Philippines, and post-communist republics, represent this region. These cases include a federal system (India), one unitary one-party socialist state (China), two economically advanced democracies (Japan and South Korea), two parliamentary systems (India and Japan), and two presidential systems (Philippines, South Korea). Jianzi He and Yijia Jing focus on China’s local governments. This chapter presents essential features of Chinese administrative division by laying out the basic structure of the entire system and discussing the role of each level of government. He and Jing highlight some demographics to illustrate the territorial and population scales that China faces at the subnational levels. The authors also discuss the centralized personnel control and incentive structures that local officials face through the target responsibility system used to evaluate their performance. They also elaborate on aspects of the opposite reforms of administrative decentralization, as well as on fiscal centralization of 1994, which changed central-local relations and adopted a land-centered financing strategy for municipal and county level governments. Taha Hameduddin provides a glimpse of Indian subnational governance by focusing on issues relating to both local and state levels of government. Hameduddin briefly discusses major features of India’s putatively federal constitutional structure by describing the major changes that state and local governments have undergone. While the states have confirmed some degree of autonomy, local governments have failed to do so. The author contends that a high degree of regionality and fragmentation in state and central politics have contributed

Introduction  xvii to the existing autonomy patterns. Hameduddin also discusses state politics by comparing the performance of national parties against the growing regional parties. The party competition, the author suggests, has made state assemblies a competitive battleground for coalition building and overcoming single-issue regional parties. Kohei Suzuki contributes with an overview of Japan’s local government system. Suzuki offers a brief historical background of Japan’s modern local government system and reviews its responsibilities and public finance. He also gives consideration to leadership selection, local challenges, characteristics of local civil servants, and their personnel system. Great emphasis is placed on the latest nationwide municipal merger reform. Based on existing empirical studies, Suzuki discusses the different effects of municipal mergers. Finally, the author notes the demographic challenges local governments face and offers suggestions for future research. The South Korea chapter is authored by Jongmin (Min) Lee, who gives special consideration to the organizational sustainability of nonprofit organizations at the subnational level. Lee emphasizes how the primary financial resource of nonprofits in South Korea is government grants both from central and subnational governments. Lee seeks to explain grant distribution at the subnational level and the correlation between unequal regional distribution of grants and nonprofit regional density. The unequal distribution of subnational grants affects distribution toward nonprofits surviving across regions. Lee illustrates this disparity with a descriptive analysis and shows that nonprofits tend to locate where government grants are generous rather than where their services are needed. Based on the descriptive analysis, Lee suggests that disparities in subnational grants distribution to nonprofits also may explain unequal service provisions across regions. Aileen V. Lapitan and Marriz M. Garciano focus on the Philippines. Here, the authors present the dynamic fiscal management of Philippine provincial governments by analyzing the implications of recent policy changes on fiscal behavior and local autonomy. They also examine how intergovernmental fiscal transfers influence local revenue generation by analyzing income and expenditure data of provincial governments in 2015, 2018, and 2021. Special emphasis is given to recent policy reforms intended to promote greater decentralization. They do this in the context of provincial governments, which play a crucial role as intermediate level local government units with a relatively weak taxing capacity compared to highly urbanized cities. Renat Shaykhutdinov examines the implications of the public policy of religious accommodation at the subnational level in post-communist Muslim republics. The research question here is to explore whether subnational governments enjoy autonomy in formulating and implementing religious policy or whether it is a function of national governments. Shaykhutdinov presents an empirical analysis which findings suggest that subnational governments do matter in public policy regarding accommodation of religious practices. Although considerable variation exists between levels of government and subnational governments in ex-communist Muslim republics, they exhibit some degree of autonomy in religious policymaking. This autonomy declines with the level of the subnational government. Part IV concentrates on the subnational jurisdictions of Africa, including two countries: Ghana and Tunisia. This set of countries allows to address salient issues of citizens’ support for subnational autonomy, local taxation, and political tensions in African countries. The set of countries includes two unitary systems (Ghana and Tunisia). Dennis A.K. Penu introduces readers to the Ghana’s intermediate level of governments by focusing on executive politics, intra-party conflict, and intergovernmental bargaining in

xviii  Handbook on subnational governments and governance Ghana’s federal democracy. He focuses on the conflict between presidents and state governors in its effects on intra-party cohesion, intergovernmental bargaining, and democratic stability. Penu offers a longitudinal description of the intergovernmental relations between governors and the three presidents elected from the Peoples Democratic Party (PDP), from 1999 to 2015. Penu also discusses the institutional evolution around regional governance, highlighting the three push and pull forces that influence it. The author argues that institutional weakening has translated into a “defederalization” of the Ghanaian state, and he relies on a gradual institutional change analysis to illustrate the evolution of regional governance in Ghana. Salih Yasun contributes with the chapter on Tunisia by describing the municipal finances and challenges of municipal taxation in post-revolutionary Tunisia. He seeks to identify the drivers of deficient local taxation under decentralization reforms. Yasun relies on a mixed-method approach that includes semi-structured in-depth interviews and a qualitative analysis to identify the drivers of local tax collection. The empirical analysis allows Yasun to compare municipal tax collection capacity between existing municipalities and those created post revolution. The in-depth interview with local officials helps identify the reasons for the observed differences. His findings highlight the importance of administrative capacity and citizen compliance on limiting local taxation capacity in Tunisia. Part V is devoted to the subnational governments in seven European countries: Estonia, Germany, Poland, Portugal, Russia, Romania, and Spain. The cases illustrate federal systems (Germany, Russia) and several degrees of decentralization. Moreover, these cases make it possible to consider subnational trajectories in post-communist regimes (Russia, Romania, Estonia, and Poland), Western European countries after authoritarianism (Portugal and Spain), and reunification (Germany). Ringa Raudla gives a description of Estonia’s subnational governments and governance in Estonia, underlying a paradoxical path of re-centralization despite a strong local autonomy. Raudla begins with an overview of the key characteristics of local governments and local governance, including the electoral system, functions, financing, and performance management. Raudla also addresses the elements of centralization that have taken place over the past decades and the comprehensive top-down amalgamation reform of 2016 to 2017. The author discusses and summarizes the key factors that have contributed to the emergence of the paradoxical situation of Estonian local governments: strong constitutional guarantees of local autonomy and political independence versus very weak fiscal autonomy and limited bargaining clout vis-à-vis the central government. Peter Eckersley contributes by focusing on Germany balancing cooperative federalism with local autonomy. Eckersley presents key characteristics of German subnational government, highlighting some of the contrasts between different Länder in terms of public management and discussing their implications for policymaking across the country. The author, who draws on a range of primary and secondary sources and focuses on both state and local levels, explains the constitutional context and how this creates an overarching administrative and legal framework that facilitates legal and bureaucratic compliance. This framework, in turn, leads to cooperation between tiers of governance in decision-making, while retaining the principle of local autonomy. These structures are mirrored in the type of public sector reforms and local climate policies. Paweł Swianiewicz analyzes the case of Poland. This chapter focuses on municipalities, which have been the strongest level in terms of functional responsibilities, financial resources, and general autonomy. Swianiewicz starts with an introduction of the most characteristic

Introduction  xix features of subnational governments and their evolutions over last decades. Subsequently, the chapter concentrates on the issue of local autonomy showing the rise and decline in this respect. Special attention is given to (a) the 1990 adoption of political, fiscal and administrative decentralization, (b) the 1998 reform that created the regional and county tier of subnational government, (c) the 2002 introduction of direct municipal mayor election, (d) the 2014 majoritarian electoral extension to municipal council elections, and (e) the 2015 re-centralization agenda that has weakened the powers and financial strength of subnational governments. Cristina M. Stănică and Viorel I. Stănică review subnational governments in Romania. In doing so, they emphasize the rural-urban connectivity through multilevel governance. The authors present the main features of Romanian subnational governments with a specific focus on their progress toward connecting the urban and rural dimensions. They highlight the uneven regional development that urban and rural areas face, including brain drain caused by lack of economic competitiveness and scarce job opportunities. The chapter describes Romania’s administrative-territorial organization, evaluates government functions, and public financing of communities. The authors explain the subnational governance landscape concerning intercommunity development associations (ADIs), local action groups (GALs), and local governments. Finally, they introduce the case of Rural-Urban Hub of the Cluj-Napoca Metropolitan Area to illustrate a bottom-up innovation of urban-rural collaboration for solving strategic policy problems. José M. Magone describes the case of Portugal. In this contribution, Magone summarizes the historical path dependency of power centralization, offers data on territorial organization and sociodemographic features. The author also discusses the political parties and electoral system at the local level, as well as the autonomous regions of the islands Madeira and Açores. Magone reflects on the impact of European Union (EU) multilevel governance on local governance. The author underlines Portugal’s dependence on EU structural and investment funds for the past 30 years, and the EU’s pressure on Portugal to democratize and decentralize the governance structures. Magone contends the centralized state has been able to resist such Europeanization by implementing pseudo reforms to remain the main gatekeeper and distributor of the EU structural and investment funds. Regina Smyth and Aidan Klein present the Russian case. The authors highlight the political tensions, blame defection, and the significant changes in the structure of the federation inherited from the Soviet system since 1991. Smyth and Klein emphasize the two forces leading these changes – economic development and military conflict. The authors document the shift in regional strategy from Boris Yeltsin to Vladimir Putin, noting the formal (e.g., blatantly fraudulent referenda) and informal changes that have led to a geopolitical change. As a result of illegal annexation, the authors note, the total number of federal subjects changed to 85 in 2014 and then to 89 after Russia’s escalation of war with Ukraine. The authors also evaluate how Russians attribute responsibility and, ultimately, blame for significant policy decisions within disparate regional contexts. In doing so, Smyth and Klein employ measures of citizens’ reported trust in various levels of government. Finally, Eloísa del Pino and César Colino introduce readers to Spain’s subnational governments. In this chapter, the authors start with the configuration of regional democracies and governments, and then they look at subnational governance configuration and problems. The authors highlight that the Spanish model of decentralization, so-called estado autonómico, can be regarded as a novel variety of federalism. Within this context, del Pino and Colino describe and appraise the functioning and achievements of Spanish regional governments

xx  Handbook on subnational governments and governance along with their governance institutions and dynamics. Moreover, del Pino and Colino discuss how regional governance, including functions, structures, processes, and outcomes, has evolved, as well as its consequences for the political system, intergovernmental relations, and policymaking. The conclusion provides a review of the theoretically substantive chapters of Part I and the descriptive and empirical findings from the country cases. The concluding chapter tries to identify patterns and similarities across the country cases and proposes a series of practical implications and considerations for future research on subnational governments and governance.

REFERENCES Ahmad, J. 2005. Decentralization and service delivery (Vol. 3603). World Bank Publications. Aldecoa, Francisco, and Michael Keating. 2013. Paradiplomacy in action: the foreign relations of subnational governments. Routledge. Avellaneda, Claudia N. 2017. “The Delegation of Municipal Spending: Does the Decision Context Matter?” In Kenneth J. Meier, Amanda Rutherford, and Claudia N. Avellaneda (Eds.), Comparative public management: why national, environmental, and organizational context matter, Georgetown University Press. 154–173. Avellaneda, Claudia N., and Johabed Olvera. 2018. “Chief executives’ approval of immigrants: Evidence from a survey experiment of 101 Latin American and Caribbean mayors.” Journal of Behavioral Public Administration, 1(1) https://​doi​.org/​10​.30636/​jbpa​.11​.14 Avellaneda, Claudia N., and Maria C. Escobar-Lemmon. 2012. “All by myself: Personal qualifications versus party affiliation in Colombian mayoral elections.” Latin American Politics and Society, 54(2): 109–132. Avellaneda, Claudia N., Ricardo A. Bello-Gómez, and Johabed Olvera. 2020. “Explaining subnational governance: The role of governors’ codified and uncodified knowledge.” Knowledge for Governance, 131–159. Avellaneda, Claudia N., Ricardo A. Bello-Gomez, and Ricardo Correa Gomes. 2022. “Municipal fiscal performance: mayors’ gender and organizational human resources.” Journal of Policy Studies, 37(3). https://​doi​.org/​10​.52372/​jps37303 Bahl, Roy, and Richard Bird. 2008. “Subnational taxes in developing countries: The way forward.” Public Budgeting & Finance, 28(4): 1–25. Baltaci, Mustafa, and Serdar Yilmaz. 2006. “Keeping an eye on Subnational Governments: Internal control and audit at local levels.” World Bank Institute, Washington, DC (2006). Barnes, Tiffany D., and Mark Jones. 2018. “Women’s representation in the Argentine national and subnational governments.” In Leslie Schwindt-Bayer (Ed.), Women, representation, and politics in Latin America, New York: Oxford University Press. 121–139. Bello-Gomez, Ricardo, and Claudia N. Avellaneda. 2022. “Mayoral preferences for delegation in collaborative arrangements: Issue salience and policy specificity.” Public Management Review, 24(7): 1048–1074. Bherer, L., Fernández-Martínez, J. L., García Espín, P., and Jiménez Sánchez, M. 2016. “The promise for democratic deepening: The effects of participatory processes in the interaction between civil society and local governments.” Journal of Civil Society, 12(3): 344–363. Bird, Richard M. 2011. “Subnational taxation in developing countries: A review of the literature.” Journal of International Commerce, Economics and Policy, 2(1): 139–161. Bruyninckx, H., Happaerts, S., Van den Brande, K., and van den Brande, K. (Eds.). 2012. Sustainable development and subnational governments: policy-making and multi-level interactions. Springer. Campbell, T., and Fuhr, H. (Eds.) 2004. Leadership and innovation in subnational government: case studies from Latin America. World Bank Publications. Costa, C. G. F. 2020. “Climate resilience building in Semi-Arid Lands (SALs): Institutional weaknesses and strengths in subnational governments in Brazil.” Desenvolvimento e Meio Ambiente, 55: 644–672.

Introduction  xxi de Mello, L., and Ter-Minassian, T. 2022. “Improving subnational governments’ resilience in the wake of the COVID-19 pandemic”, OECD Working Papers on Fiscal Federalism, No. 37, OECD Publishing, Paris, https://​doi​.org/​10​.1787/​6b1304c8​-en. de Oliveira, J. A. P. 2009. “The implementation of climate change related policies at the subnational level: An analysis of three countries.” Habitat International, 33(3): 253–259. Eaton, Kent. 2017. Territory and ideology in Latin America: policy conflicts between national and subnational governments. Oxford University Press. Escobar-Lemmon, M. C., and Funk, K. D. 2020. “Women’s representation in subnational governments.” Gender and Representation in Latin America, 99–120. Fantoni, M., and Avellaneda, C. N. 2022. “Explaining paradiplomacy: Do local pro-international structures and political support matter?” Global Public Policy and Governance, 2, 353–375 https://​doi​.org/​ 10​.1007/​s43508​-022​-00044​-z Fitzpatrick, J., Goggin, M., Heikkila, T., Klingner, D., Machado, J., and Martell, C. 2011. “A new look at comparative public administration: Trends in research and an agenda for the future.” Public Administration Review, 71(6): 821–830. Fox, W. F., and Gurley, T. 2006. Will consolidation improve sub-national governments? Vol. 3913. World Bank Publications. Frías-Vázquez, M., and Arcila, C. 2019. “Hate speech against Central American immigrants in Mexico: Analysis of xenophobia and racism in politicians, media and citizens.” In Proceedings of the seventh international conference on technological ecosystems for enhancing multiculturality. 956–960. Grydehøj, A. 2016. “Toward subnational democracies of scale: Tensions between democratic legitimacy, legality, and effective governance.” Geopolitics, 21(1): 22–42. Gustafsson, Maria-Therese, and Martin Scurrah. 2019. “Strengthening subnational institutions for sustainable development in resource-rich states: Decentralized land-use planning in Peru.” World Development, 119: 133–144. Happaerts, S. 2012. “Sustainable development and subnational governments: Going beyond symbolic politics?” Environmental Development, 4: 2–17. Happaerts, S., Van den Brande, K., and Bruyninckx, H. 2011. “Subnational governments in transnational networks for sustainable development.” International Environmental Agreements: Politics, Law and Economics, 11: 321–339. Haque, M.S., van der Wal, Z., and van den Berg, C. 2021. “Comparative studies in public administration: Intellectual challenges and alternative perspectives.” Public Administration Review, 81: 344–348 https://​doi​.org/​10​.1111/​puar​.13349 Herrera Gutierrez, Arturo. 2015. “What are we talking about when we talk about “subnational” governments?” World Bank Blogs, World Bank. https://​blogs​.worldbank​.org/​governance/​what​-are​-we​ -talking​-about​-when​-we​-talk​-about​-subnational​-governments Hofman, B., and Cordeiro Guerra, S. 2007. “Ensuring inter-regional equity and poverty reduction.” Fiscal equalization: Challenges in the design of intergovernmental transfers, 31–59. Iddawela, Y., Lee, N., and Rodríguez-Pose, A. 2021. “Quality of sub-national government and regional development in Africa.” The Journal of Development Studies, 57(8): 1282–1302, DOI: 10.1080/00220388.2021.1873286 Ito, Takeshi. 2011. “Historicizing the power of civil society: a perspective from decentralization in Indonesia.” The Journal of Peasant Studies, 38(2): 413–433. Kössler, K. 2012. “Immigration and migrant integration in multicultural societies: new playgrounds for subnational governments?” Europe en Formation, (1), 367–389. Kuznetsov, A. S. 2014. Theory and practice of paradiplomacy: subnational governments in international affairs. Routledge. Makreshanska-Mladenovska, S., and Petrevski, G. 2019. “Decentralisation and income inequality in Central and Eastern European countries.” Post-Communist Economies, 31(1): 123–136. Martinez-Vazquez, J. 2011. The impact of fiscal decentralization: Issues in theory and challenges in practice. Asian Development Bank. http://​hdl​.handle​.net/​11540/​966 Meier, Kenneth J., Rutherford, A., and Avellaneda, C. N. (Eds.) (2017). Comparative public management: why national, environmental, and organizational context matters. Georgetown University Press. https://​muse​.jhu​.edu/​book/​49920

xxii  Handbook on subnational governments and governance Olvera, J., and Avellaneda, C. 2017. “Performance management and public administration.” In William Thompson (Ed.), The Oxford Research Encyclopedia of Politics. Oxford University Press. O’Toole, L. J., and Meier, K. J. 2015. “Public management, context, and performance: In quest of a more general theory.” Journal of Public Administration Research and Theory, 25(1): 237–256. https://​doi​ .org/​10​.1093/​jopart/​muu011 Proszowska, D. 2021. “Trust lost, trust regained? Citizens’ trust in EU, national and subnational governments during and after economic crisis 2008–2019.” In The Politics of Legitimation in the European Union, Routledge. 61–89. Smoke, P. 2015a. “Managing public sector decentralization in developing countries: Moving beyond conventional recipes,” Public Administration and Development, 35(4): 250–262. Smoke, P. 2015b. “Rethinking decentralization: Assessing challenges to a popular public sector reform,” Public Administration and Development, 35(2): 97–112. Suzuki, K., Ha, H., and Avellaneda, C. N. 2020. “Direct and non‐linear innovation effects of demographic shifts.” Australian Journal of Public Administration, 79(3): 351–369. Tausanovitch, C. 2019. “Why are subnational governments responsive?” The Journal of Politics, 81(1): 334–342. Ter-Minassian, T. 2007. “Fiscal rules for subnational governments: Can they promote fiscal discipline?” OECD Journal on Budgeting, 6(3): 1–11. Trejo, G., and Ley, S. 2018. “Why did drug cartels go to war in Mexico? Subnational party alternation, the breakdown of criminal protection, and the onset of large-scale violence.” Comparative Political Studies, 51(7): 900–937. Vammalle, C. and Bambalaite, I. 2021. “Fiscal rules for subnational governments: The devil’s in the details”, OECD Working Papers on Fiscal Federalism, No. 35, OECD Publishing, https://​doi​.org/​10​ .1787/​531da6f9​-en. Wilson, R.H., Ward, P.M., Spink, P.K., and Rodriguez, V.E. 2008. Governance in the Americas: decentralization, democracy, and subnational government in Brazil, Mexico, and the USA. University of Notre Dame Press.

PART I DIMENSIONS OF SUBNATIONAL GOVERNANCE

1. Fiscal aspects of subnational governments Jorge Martínez-Vázquez, Eduardo Sanz-Arcega, and José Manuel Tránchez-Martín

1.1 INTRODUCTION Over the past decades a political shift toward decentralization has been under way in many countries around the world. At the same time, this trend coexists with those in regional integration and globalization processes that imply different dynamics of accumulation and upward movement of power. As has been pointed out by Bell (1987), “Nation States are too small to tackle large things and too large to address small things”. Moreover, and regardless of their formalized constitutions as federal or unitary countries, almost every single country has some kind of internal territorial division that implies devolution of political and fiscal powers from central governments to subnational governments. This trend to bring governments closer to citizens has implied increasing the powers of subnational governments, including a large and recent bloom of metropolitan areas which have emerged as contemporary modern economic growth engines in their respective countries (Slack, 2019; Jong et al., 2021). The main economic argument for further empowering subnational governments lies in their presumed capabilities for enhancing public sector efficiency and economic growth. Decentralization is expected to promote both by allowing subnational decision making better fit the existing heterogeneity in preferences and local conditions. Overall, the international experience appears to show that fiscal decentralization can generate many positive economic and governance related outcomes (Martínez-Vázquez et al., 2016; OECD, 2021). On one side, fiscal decentralization may promote consumer and production efficiency through better knowledge of needs in a context of regional heterogeneity of preferences, and through increased yardstick competition among subnational governments, paving the way for “laboratory federalism” incentivizing innovation and improved governance (Hayek, 1945; Oates, 1972). On the other side, fiscal decentralization, if not well designed, may also exhibit economic weaknesses that are also worth emphasizing. First, from an efficiency perspective, too much decentralization can lead to neglecting the role of economies of scale in the provision of goods and services; fragmented decentralized decision making can also lead the poor handling of positive and negative externalities across jurisdictions, and it can also lead to harmful forms of interjurisdictional competition with “races to the bottom,” as, for example, in the taxation of business or the enforcement of environmental standards (Boadway & Shah, 2009). Second, from an equity perspective, decentralization may lead to different levels of service provision across jurisdictions caused by horizontal disparities in the levels of development and fiscal capacity (Boadway & Shah, 2007; Martínez-Vázquez & Searle, 2007). Last, decentralization may suffer from institutional weaknesses, such as a lack of coordination and complexity of decision making, difficulties in dealing with localized macroeconomic shocks, the lack of

2

Fiscal aspects of subnational governments  3 market unity, the threat of local elite capture, or the lack of administrative capacity and low levels of human capital (Hankla, 2008; Eaton et al., 2011; OECD, 2021). The economics literature has emphasized the virtuous circle of development and quality of institutions, so that government effectiveness is closely linked to regulatory quality and rule of law, and they are also linked to the level of economic development (Kaufmann et al., 2010; Aiello et al., 2018). This may also explain why the link between decentralization and economic growth appears to be also significantly mediated by institutional quality (Martínez-Vázquez & McNab, 2003; Canavire-Bacarreza et al., 2020; Rodríguez-Pose & Muṧtra, 2022). Nevertheless, finding the true impact of fiscal decentralization is naturally hampered by the wide heterogeneity across decentralization experiences and the availability of data across the many dimensions of decentralized institutions (Martínez-Vázquez & Timofeev, 2009; Bahl & Martínez-Vázquez, 2022). It is also worth noting that several (and even complementary) reasons beyond economic efficiency favor decentralization, which only truly operates if subnational revenue and spending autonomy are present (Oates, 2005; Weingast, 2009). To mention a few of these reasons, embracing power devolution is a policy formula to enhance development and democratic ideals, a transition away from planned centralized economies (as it is the case for ex-socialist countries), or a policy response to separatist and/or ethnic conflicts within countries (Martínez-Vázquez et al., 2016). Ultimately, for decentralization to work efficiently it is also worth taking into account citizens’ own views and preferences for the vertical division of powers and their perspectives on specific policy issues, which may not match the former (Norris, 1999; Henderson et al., 2014; Hobolt & de Vries, 2016; Desmet et al., 2022). All in all, the scope of the decentralization process can be observed from three different but generally complementary perspectives: i) fiscal, how revenues and expenditures powers are assigned to subnational governments; ii) administrative, how regulatory powers are ceded downstream; and iii) political, how subnational officials assume their role (Rodden, 2004). In this chapter, our aim is to focus on the fiscal perspective and offer an overview of best practices for subnational fiscal governance. Arguably, the topic under discussion is considerably broad, which necessarily leads us to be selective in the issues to be discussed. Our main focus will be on decentralized governance, the latter being defined as “the manner in which power is exercised in the management of a country’s economic and social resources for development” (World Bank, 1992:1). More specifically, decentralized fiscal governance could be understood as the ability of subnational governments to effectively manage expenditures and raise adequate levels of revenues. Thus, dealing with decentralized fiscal governance implies solving four basic challenges in intergovernmental fiscal relations design: the problems of expenditures and revenue assignments, the implementation of an efficient and effective intergovernmental transfer system, the design of fiscal and borrowing rules, and the validation of formal and informal institutional arrangements and political institutions enabling fiscal decentralization to work. How successful we are on addressing those four challenges, especially the last one (Kaufmann & Kraay, 2007), will generally determine whether countries experience the benefits of decentralization or endure its disadvantages. The balance of this chapter is organized as follows. Section 2 deals with the principles that guide an efficient decentralized fiscal governance design. Section 3 briefly digs into the role of formal and informal political institutions aimed at supporting the enforcement of fiscal governance rules. Section 4 offers some concluding remarks.

4  Handbook on subnational governments and governance

1.2

PRINCIPLES FOR AN OPTIMAL DESIGN OF SUBNATIONAL FISCAL GOVERNANCE

The design of a well-functioning fiscal decentralization system (in other words, its governance system) involves making decisions about how to allocate fiscal power across subnational tiers of government. As already indicated above, this means successfully addressing the following issues: the assignment of expenditure and revenues responsibilities, an effective design of intergovernmental transfers system, and the introduction of fiscal discipline mechanisms to avoid excessive fiscal imbalances and overborrowing. The aim of this section is to offer an overview of best practices on all these four elements. 1.2.1

The Problem of Optimal Assignment of Expenditure Responsibilities

1.2.1.1 Definition The “expenditure assignment problem” in countries with multilevel governments answers the fundamental question of “who must do what?” and refers to which level of government (central, regional, local) will perform the different functions entrusted to the public sector. It is broadly accepted that expenditure assignments must precede tax assignment because this latter needs to be generally guided by the expenditure needs or spending requirements of the different levels of government that might be subsumed by the dictum of “finance must follow function” (Bahl & Martinez-Vazquez, 2022; Shah et al., 2006). A previous necessary step to resolve the “assignment problem” is to clarify the roles of the public sector in the economy and distinguish them from those of the private sector. The classic literature on public finance (Musgrave, 1959) points to certain public sector functions with regard to objectives of efficient allocation of resources (policies of provision of goods and services that private markets will not supply efficiently), income redistribution (policies with large redistributive value), and economic stabilization (policies to avoid economic imbalances). Building upon this literature there is a broad consensus in considering that national governments should assume economic stabilization functions, the achievement of improvements in income distribution, the provision of public services of national character (whose benefits transcend regional borders) and the maintenance of an efficient internal market for goods and services. Alternatively, the literature suggests that subnational governments should be responsible for the provision of subnational public services (whose beneficiaries are within regional or local boundaries), also being able to have shared responsibilities in redistributive functions. At the same time, following the subsidiarity principle economic responsibility should be decentralized to subnational government to the greatest extent possible consistent with these national economic objectives (Boadway & Shah, 2009). Thus, an important step in the design of a multilevel government system is achieving a clear and explicit assignment of expenditures responsibilities among different levels of government. Ambiguity or lack of clarity in the allocation of functional or expenditure responsibilities for each level of government is often the main source of instability and inefficiency in the functioning of decentralized states.

Fiscal aspects of subnational governments  5 1.2.1.2 Principles for an optimal expenditure assignment The literature on fiscal federalism highlights several principles to be followed in order to achieve the optimal decentralization of spending powers: ● The principle of correspondence: For an efficient provision of public services there should be a close correspondence between any government’s jurisdiction and the geographic area benefiting from its provision of public services. From this perspective, it is necessary to distinguish between national, regional or local public goods, and to accordingly allocate the task to provide them. However, it is also likely that the scope of benefits does not always perfectly coincide with the administrative delimitation of the government in charge of the provision. In addition, in some cases, there are reasons for a centralized or at least shared responsibility or coordinated provision with upper-level governments, even though the scope of the public goods or services to provide is purely subnational. For instance, this happens when the goods and services have relevant external effects, their provision benefits from economies of scale, or when they are considered essential or “merit goods” and by equity reason a minimum standard of services should be guaranteed across the whole national territory. ● The principle of subsidiarity: The responsibility for providing any public good should be assigned to the lowest possible level of government compatible with the size of the “benefit area”. This principle finds its theoretical foundation in the decentralization theorem (Oates, 1972), which states that under the assumptions of equal provision costs (for central and sub-central governments) and no externalities, decentralized provision is always more efficient (or at least equally efficient) than uniform centralized provision, since it can better adjust to the different levels demanded by taxpayers or service beneficiaries. ● The principle of fiscal co-responsibility: Public goods or services generally will be more efficiently provided when the government in charge finances them with resources raised from its own residents or voters. This reinforces the correspondence between the beneficiary and financing population, avoiding “fiscal illusion” problems, and makes the government providing the service more accountable to its voters for the level of provision and the quality of the service.1 ● Affordability and administrative capacity: In addition to those classical principles, other relevant elements must be considered to solve the expenditure assignment problem. First the issue of affordability or whether that government unit has the financial capacity to cover their “expenditure needs”. This latter understood as a certain measure or quantification of the financial resources or funds needed for the actual implementation of the assigned expenditure responsibilities. Often, these “expenditure needs” can be an ambiguous concept because of the different standards and methodologies that can be used in their measurement. Second, ignoring the administrative capacity of local governments can set decentralization to failure; unfortunately, it is quite common, especially in developing countries, to observe some competences decentralized even though subnational governments do not have the administrative capacity to carry them out. Hence one needs to bear in mind the administrative capabilities of subnational governments in decentralization design.

6  Handbook on subnational governments and governance 1.2.1.3 Some problems to avoid in expenditure assignment The international experience provides some additional lessons on main problems to avoid in expenditure assignments (Martínez-Vázquez & Timofeev, 2007). ● First, a lack of a formal and explicit assignment of responsibilities must be avoided. A distribution of competences formalized by strong legal norms and as explicit as possible is a value that enhances effectiveness of decentralization. It has been observed, especially in countries with recent decentralization processes, that the lack of such consistent and clear legal frameworks leads to processes of wide legal conflict over the determination and scope of competences, ultimately paralyzing the process. ● Second, it must be born in mind that inefficient assignments brake with the principles above. This problem arises, for example, when the principle of correspondence is not taken into account and competences over policies of clear subnational efficiency (like firefighting or sewage services) are assigned to the central government, or when functions with large redistributive functions (like unemployment insurance) are assigned at the subnational level. ● Last, the large use of concurrent or shared responsibilities (those assigned simultaneously to two or more levels of government) without clarifying the level of government responsible for each of policy dimension (regulation, financing, provision, delivery) also leads to inefficient expenditure assignments. Although it would be ideal to assign full exclusive responsibility to a single level of government, it is often the case that allocating concurrent responsibilities is the best choice. However, this requires further clarity in the assignments of sub-functions or attributes for those services. Too often this last step is omitted. At this point, here is the main conclusion: despite these guiding principles discussed above, it is not possible to speak of a single optimal assignment. The final assignment may depend on the choice of compromise among different principles and may even depend on history and traditions of the country. The most important thing is that the assignments are clear and stable over time. 1.2.2

The Problem of Optimal Revenue Assignment

1.2.2.1 Definition Following the dictum “finance should follow function”, an optimal decentralization process implies that tax power must be also devolved to subnational governments, so that they can cope with the expenditures competencies they have been assumed. There is a general agreement that the crucially desirable accountability and efficiency associated with decentralization can only be attained when subnational governments have an adequate level of revenue autonomy (Oates, 2005; Weingast, 2009; Hankla et al., 2019). There are several advantages to subnational revenue autonomy. ● First, subnational revenue autonomy increases political accountability and reduces subnational governments’ financial dependency on central government transfers (Olson, 1969; Rodden et al., 2003). ● Second, it improves spending efficiency because subnational governments might spend their resources differently when they have been financed by taxpayers inside their jurisdic-

Fiscal aspects of subnational governments  7 tion than if they have been obtained by transfers received from the central government (as the tragedy of the commons illustrates). ● Last, subnational revenue autonomy increases budgetary responsibility and can help avoid the soft budget constraint problem, because sufficient revenue autonomy enhances subnational political accountability and financial capabilities, and thus weakens political arguments in favor of bailouts. Subnational governments will have less incentives to overspend or to incur situations of high deficits and debt, and also have a greater ability to repay their debts. The tax assignment problem answers the fundamental questions of what taxes should each level of government have and what scope of taxing powers should be decentralized. As in the case of expenditure responsibilities, taxes do not have a homogeneous nature and different dimensions or “scopes of fiscal power” can be distinguished, such as allocation, regulation, collection, and administration. Moreover, decentralization along each scope of power can occur with different degrees of responsibility (exclusive or shared powers). So, for example, tax regulations on a specific tax can be assigned exclusively to a single level of government or shared by various levels. 1.2.2.2 Principles for an optimal tax assignment The literature on fiscal federalism has pointed out different criteria to guide an optimal tax power design (Tiebout, 1956; Musgrave, 1959; Oates, 1972; Bird, 1993; Ter-Minassian, 2020). ● First, following the principle of economic efficiency, several arguments are put forward. In order to avoid tax exporting and tax competition problems, it is recommended that taxes on mobile bases (e.g., corporate earnings) should be levied by national or supranational governments while taxes on immobile bases (e.g., properties) should be levied by subnational governments. Likewise, to favor market unity and avoid problems of geographic non-neutrality, it is recommended that general consumption taxes are levied by central governments so as not to interfere with trade or the location of economic activity. ● Second, following equity considerations, it is recommended that progressive taxes with high redistributive potential (e.g., progressive personal income tax) should be allocated at the national government level and thus avoid perverse income mobility effects that could occur if this type of tax were decentralized. Additionally, from the point of view of horizontal equity, it is recommended that taxes with unequally distributed bases throughout the territory be assigned to the national government, so as to reduce territorial disparities in fiscal capacity and to avoid having to articulate broad equalization grants to compensate for those differences. ● Third, from the perspective of economic stabilization, it is recommended that those taxes with high collection capacity and high sensitivity to the economic cycle (e.g., profit and income taxes) be allocated to the national government. Conversely, it is recommended that subnational taxes generally have stable bases and revenues less sensitive to the economic cycle. ● Fourth, following the principle of administrative effectiveness and looking to achieve lower compliance and administration costs, it is suggested that taxes should be allocated to the jurisdiction with the greatest ability to monitor them. This allows to minimize administrative costs, as well as the potential for tax avoidance. For example, taxes on property and

8  Handbook on subnational governments and governance land are to be assigned at the local government level because they are in a better position to assess these types of tax bases. ● Fifth, following the principle of fiscal correspondence, taxes based on benefit taxation are appropriate for any level of government and should be used to the largest extent possible, in order to match taxpayers and services users. ● Lastly, it is important for achieving accountability and efficiency that decentralized taxes should be highly visible, so that tax burdens are clearly perceived by local residents. 1.2.2.3 Some problems to avoid in tax assignment A thorny and typically misunderstood issue is what form of tax autonomy should be granted to subnational governments. Autonomy to introduce new taxes can lead to confusion and nuisance taxes, and thus, it is generally not needed. Sometimes autonomy to regulate tax bases may not be desirable since it could lead to increased compliance and administration costs. The most desirable type of tax autonomy at the subnational level is the power to set tax rates, perhaps between minimum and maximum centrally legislated rates. This feature is highly visible and is likely to generate the desirable accountability and fiscal responsibility among subnational governments. One last dimension of autonomy is taking charge of the administration of the taxes assigned to the subnational governments. This can enhance visibility and accountability, but it is not always desirable if the tax can be more efficiently administered and enforced by the central national tax administration. 1.2.3

Intergovernmental Transfers System Design

In addition to revenues obtained from their own fiscal capacity another key source of revenues for subnational governments are intergovernmental transfers or grants, which are financial resources received from higher levels of government or even from other subnational (peer) governments. 1.2.3.1 Objectives The literature on fiscal federalism highlights several objectives to be covered with this type of instrument. ● Correcting vertical fiscal imbalances. Fiscal imbalances occur at some level of subnational government when there is a mismatch between its fiscal capacity from own revenues and the spending needs to be covered. Vertical fiscal imbalances may arise due to (i) an unequal or inappropriate assignment of spending responsibilities, (ii) an unequal or inappropriate assignment of taxing powers with usually lack of tax autonomy at the subnational levels, (iii) an inappropriate exercise of spending powers beyond standard expenditures needs, and/or (iv) an inappropriate exercise of tax powers due to a lack of tax effort. These imbalances, especially the two first types, are usually treated with vertical transfers, typically via revenue sharing instruments or as unconditional formula-based transfers. ● Correcting horizontal fiscal imbalances. This type of imbalance occurs when subnational governments have significant disparities in fiscal capacity to raise revenues or because they experience large differences in expenditures needs. These imbalances are usually treated with fiscal equalization transfers more generally, addressing both a lack in fiscal capacity and/or higher spending needs.

Fiscal aspects of subnational governments  9 ● Correcting spillovers or externalities. When benefits from a service provision extend beyond the boundaries of a local government to beneficiaries in other localities, central governments may implement transfers to help internalize the costs of provision among all beneficiaries concerned. A typical instrument to compensate for those benefit spillovers is conditional grants with or without matching provisions. ● Achieving national minimum standards. In order to avoid excessive territorial differences in the level of provision of “merit” goods and services of national significance, central governments may utilize conditional transfers to subnational governments to guarantee that those minimum provision levels are attained. ● Strengthening a more balanced regional development. Territories at the same level of government usually present wide economic and social differences, typically due to a variety of reasons, such as resource endowments, geography, or climate. To ameliorate those disparities, typically, central governments utilize compensatory transfers to the lagging regions, including different types of capital grants for infrastructure development, understanding that improvements in capital stock is one of the most effective instruments to enhance local development. ● Influencing subnational policy agenda (spending power). Sometimes higher-level governments use transfers to induce lower-level governments to spend resources and develop policies that in principle were not among their priorities. The more common instrument in this case is matching transfers, sometimes with a matching rate that varies inversely with the recipient’s fiscal capacity. ● Macroeconomic stability and fighting asymmetric shocks. Macroeconomic shocks, such as economic crises, can affect subnational government unequally depending on the type of shock. In these cases, national government can implement specific transfers to mitigate or offset the subnational economic and budgetary imbalances, which otherwise could harm national macroeconomic stability. 1.2.3.2 Typology To address the core reasons and objectives just described above, the typology of intergovernmental transfers is wide and varied and its design is generally related to the main objectives being pursued. 1) Tax base and revenue sharing Revenue sharing and tax base sharing can be used to address multiple objectives such as closing vertical fiscal imbalances, contributing to horizontal fiscal equalization, stimulating devolution and tax effort at lower-levels, and promoting subnational development (Boadway & Shah, 2009).   Revenue sharing implies that one level of government (usually subnational ones) has access to a specific share of revenues collected by another level (usually national government), and generally generated in its own territorial area. Revenue sharing agreements are usually complex because it must be established what type of revenues are shared, what “revenues generated in its own territory” means, and whether there are any restrictions for what purposes they can be used.   Revenue sharing is mostly implemented on a derivation basis (that is, where the revenues are derived or collected). Its effects are straightforward: the higher the bases assigned to each territory, the higher the tax collection obtained there. Thus, revenue sharing on

10  Handbook on subnational governments and governance a derivation basis allows a country to recognize the role of the most economically dynamic regions and provides them with a salient incentive to continue to play that role.2   Tax base sharing means that two or more levels of government levy rates on a common base. Tax base determination usually rests with the higher-level government with lower tiers of government levying supplementary rates on the same base (Shah et al., 2006). This formula, in contrast to pure revenue sharing, also enhances devolution of tax power and accountability. Although tax base determination is usually left to the higher-level government, lower levels of government can exercise their tax power on these bases using different rates, and also at times changing the tax base with fiscal exemptions, deductions, etc. 2) Equalization transfers The allocation of resources between territories on a purely tax assignment basis is likely to cause territorial fiscal disparities due to differences in economic activity, income and wealth between them, thus leading to horizontal fiscal imbalances in terms of fiscal capacity. And, as we already saw above, horizontal fiscal disparities may also arise because of differences in expenditure needs. The fundamental instrument to address these horizontal disparities is equalization grants.   A proper design of an equalization grant involves several steps (Ponce-Rodríguez et al., 2020): ● First, it is necessary to choose an equity criterion on which to articulate the grant. This is usually a political decision that can have different scopes and orientations (i.e., total or partial equalization), depending on the pool of available funds (which can come from the central government alone or also from relatively wealthier subnational governments in what is known as “Robin Hood” funding schemes). A commonly used equity criterion is to allow all subnational governments at the same level to provide a standard level of public services assuming they are performing a standard level of tax effort. ● Second, carrying out the technical design of the grant involves two elements. On the one hand, the equalization pool of funds must be determined. This can be done fixing a reasonable stable quantity in the national budget every year either in an ad hoc manner or better, using a stable predictable formula, such as fixed share of central government revenues. In practice, there is a need to find an equilibrium between the more certainty and predictability offered by a fixed formula and allowing for certain degree of flexibility and discretion to the central government under certain circumstances to implement macroeconomic fiscal stabilization policies. And, on the other hand, the criteria or formula to allocate the equalization fund must be established. The most common method used in the international practice is the “fiscal gap” approach, defined as a formula that estimates the difference between separate estimates of expenditure needs and fiscal capacity of the subnational governments. This leads to the issue of the different methodologies that can be used to quantify expenditure needs and fiscal capacity, and the different ways to apply their difference in the final formula.3 3) Conditional grants Revenue sharing and equalization grants are typically structured as general-purpose or unconditional grants. They provide general financial support to subnational governments, allowing recipients a high level of discretion to use the funds. These transfers are aimed to ensure financial sufficiency for the provision of public services, to enhance inter-territorial equity and to help to preserve spending subnational autonomy. These transfers are usually

Fiscal aspects of subnational governments  11 established by law, as in the case of revenue sharing and equalization grants, but occasionally they may have a discretionary ad hoc nature.   In contrast, specific-purpose or conditional grants are aimed at boosting or directing subnational government spending to specific programs or activities. These grants may be regular or mandatory in nature, discretionary or ad hoc. Moreover, conditionality can be ex ante, specifying in advance the type of expenditures that can be financed, or ex post, when certain results are required using the transfer (performance-based grants). In the case of ex-ante conditionality, this can be rather general, as in the case of block grants, requiring only that funds are spent in a particular sector by letting subnational governments decide how, or they can be quite concrete, as in the case of specific grants, directing subnational governments in a detailed manner how and on what to spend the funds.   Sometimes conditional grants incorporate matching provisions and establish the obligation for recipient governments to contribute with a percentage of the program’s funding. Matching requirements reinforce the correct use of funds and taking “ownership” of the programs by recipient subnational governments since part of their own funds are also committed to the project. Matching arrangements, therefore, also contribute to the “additionality” of central government funds. However, matching arrangements can also represent a greater burden for recipient jurisdictions if they have limited fiscal and administrative capacity. 4) Capital grants Capital grants are used for several objectives: supporting lower-tier governments with financial difficulties or limited borrowing ability to undertake infrastructure projects; closing horizontal differences in infrastructure endowments between governments at the same level; supporting certain central government sectorial objectives to develop by subnational governments; or addressing externalities across subnational governments.   The taxonomy of capital grants is varied and flexible. Thus, as in the case of recurrent expenditure conditional grants, there may be “specific project-based grants”, which tend to be highly monitored by the granting government, as well as “block grants”, which provide much more discretion in the use of funds by the recipient government. Whatever the type of grant is implemented, it is crucial to ensure its transparency to avoid problems of inefficient allocation and corruption. Capital investments tend to be the most common source of corruption issues at the subnational level.   Another key issue to care about in capital grants design and allocation is to avoid disincentives for subnational governments. Grant allocation should incorporate instruments to ensure that recipient governments provide additional financing for the project or present a future commitment to maintain the investment. Here again the usual formula is to introduce “matching clauses” to require subnational governments to match a share of the total capital expenditures to be financed. Funds allocation also should reward those governments that maintain sustained volumes of capital investment with their own resources and provide adequate maintenance of existing infrastructure. One main difficulty is how to encourage subnational governments to use prudential borrowing to finance their capital infrastructure needs, and thus avoid generating expectations about central capital grants as the only possible source to finance subnational investments.

12  Handbook on subnational governments and governance 1.2.4

Subnational Government Borrowing and Fiscal Rules

A complementary resource in the finances of subnational governments, in addition to their own taxes and transfers, is borrowing. 1.2.4.1 Justification The literature on fiscal federalism supports the use of borrowing by subnational governments to finance its investment needs, whether new infrastructures or rehabilitation and maintenance of existing capital stock. This is for several reasons. ● First, due to efficiency-related arguments, borrowing may foster long-term subnational growth. ● Second, subnational borrowing may achieve equity goals because it might make possible to spread the cost of financing investments among future generations who will enjoy them. ● And third, subnational borrowing may increase financial autonomy and responsibility, because subnational governments must assume their own debt to finance their investments. 1.2.4.2 Borrowing instruments The main borrowing instruments used by subnational governments are bond issues, loans, and commercial debt.4 ● Borrowing through bonds involves subnational governments issuing public debt securities to raise financing in capital markets. This formula, widely used by national governments to finance long-term investments, presents difficulties for many, relatively smaller and poorer subnational governments. First, in certain contexts (developing countries or countries in transition), capital markets often are not sufficiently developed to accommodate subnational debt issuance. And second, even if capital markets exist, smaller governments may have problems to place bonds among investors if they have low credit worthiness. To support this option, it would be desirable that national governments reinforce the credit worthiness of these bonds indicating that they conform with market specifications or establishing some form of a guarantee, such as an insurance scheme for them. However, it is not recommended that central governments act as direct guarantors of the bond issue because this can lead to a moral hazard problem by weakening the responsibility that the issuer should have and the prudence the lender should exercise. ● Loans account for the largest share of subnational governments borrowing. Commercial banks and other intermediary financial institutions are the main loan providers, but, in some countries, central governments have become important providers.5 ● Borrowing is also possible through commercial debt whereby subnational governments are effectively financed by delaying payments to providers or take short-term credits. Its use can also be wide, especially when financial conditions are tightened in the financial sector. 1.2.4.3 Over-borrowing In general, there is consensus in the fiscal federalism literature that there is no intrinsic superiority to any approach to financing subnational government long-term capital investment needs (Ponce-Rodríguez et al., 2020; OECD/KIPF, 2016). Quite on the contrary, an inappropriate use of subnational borrowing can lead to fiscal imbalances and situations of fiscal stress which generally justify the need for central monitoring and setting criteria for sound debt manage-

Fiscal aspects of subnational governments  13 ment. The literature on fiscal federalism highlights several factors that explain over-borrowing situations: ● First, there are reasons related to an incorrect design of the decentralization system, such as large vertical imbalances not solved by the transfer system, low tax autonomy and excessive dependence on intergovernmental transfers – the so-called common pool problem6 – and moral hazard problems and soft budget constraint (Ter-Minassian, 2007; Ahrend et al., 2013; De Biase & Dougherty, 2022). ● Second, there are factors based on political economy issues reflecting that subnational governments do not internalize the cost of spending correctly and lead to overspending decisions, such as the influence of the political-electoral cycle, the dominance of “pork barrel projects”, the shift of the tax burden to future generations, or the use of debt as a strategic variable to seek reelection (Rodden et al., 2003; OECD/KIPF, 2016). ● Third, social and economic context factors can lead to over-borrowing. The existence of extraordinary episodes such as wars, natural disasters, economic crises, health crises, and so on, inevitably lead to over-borrowing behavior due to the new and extraordinary spending needs that arise. Although in these circumstances, there is usually a certain recentralization and assumption of greater spending responsibilities by national governments, subnational governments are not unaffected by this type of context and also incur greater spending and indebtedness. In these circumstances, it is essential to maintain strong coordination mechanisms to ensure that the measures taken by different tiers of government go in the same direction, are complementary and do not involve duplicate spending (Bahl & Martínez-Vázquez, 2022). ● And fourth, empirical evidence shows that markets often fail to properly assess subnational default risks, thus requiring complementary monitoring and surveillance by central governments. There are several reasons for this, such as a lack of adequate information at the sub-central government level for markets to be able to properly monitor or the perception that national governments will eventually bail out subnational ones, thus minimizing the risks of subnational insolvency (Ter-Minassian, 2007; Martínez-Vázquez & Vulovic, 2016). Problems of over-borrowing and insolvency risks in subnational governments can represent significant negative effects for the country as a whole and therefore generally require a joint supervision by central authorities. First, insolvency problems in subnational governments can cause disruption of public service provision. This may lead to central government intervention to guarantee its provision and consequently to unexpected increases in spending. However, national financial sustainability is determined by the joint action of all tiers of government, and fiscal stress or insolvency problems at one level can spur negative externalities affecting the others. As an illustration, excessive subnational over-borrowing may increase the national risk premium. This contagion effect may be even greater if markets consider national government as subsidiarily responsible for subnational debt and implicitly or explicitly anticipate central government bailouts (OECD/KIPF, 2016; Vammalle & Hulbert, 2013). 1.2.4.4 Typology of fiscal discipline mechanisms The relevant problems that can be caused by subnational over-borrowing make it necessary to establish fiscal discipline mechanisms not only to guarantee sustainability of subnational public finances but to safeguard overall macroeconomic stability in the country. According

14  Handbook on subnational governments and governance to Ter-Minassian and Craig (1997), most existing fiscal discipline mechanisms fall into four general categories: 1) Market discipline Under this approach subnational borrowing is regulated and restricted by financial markets. Subnational governments are free to decide about their debt (amount, lenders, terms, conditions), and it is financial markets institutions who assess their creditworthiness to borrow (and impose higher costs on the riskier governments). In this vein, for market discipline to work, a series of conditions must be met that are rarely fulfilled:7 (i) lenders must have accurate information about the borrower’s financial situation and their ability to repay the debt; (ii) there must be credible guarantees that central governments will not intervene with bailouts; and (iii) borrowers should have sufficient response capacity (such as revenue autonomy) to improve their solvency against the system of signal and incentives proposed by capital markets.   In practice, the difficulty of meeting these conditions indicates that market discipline may not be a general solution for imposing subnational governments’ fiscal discipline. In many countries, subnational governments seldom turn to capital markets for financing, as they may have other more available sources of revenues (transfers, central government loans, etc.). Additionally, establishing the right amount of information can be difficult; a close look at subnational government credit ratings in some countries shows that subnational governments receive similar ratings, more related to the sovereign rating than to the different financial situations of those governments (OECD/KIPF, 2016; Vammalle & Hulbert, 2013). 2) Administrative approach: Direct control by higher tiers of government Under this approach, national governments have direct control over subnational debt through different instruments: from a required approval to restrictions about debt ceilings or even about the use of debt.8 This method contributes to an effective monitoring of subnational debt and enhanced macroeconomic stability, but at some costs for subnational governments.   There are also some drawbacks. First, this approach weakens fiscal decentralization because it eliminates the ability of subnational governments to be fully responsible for their own debt. Second, the administrative approach may erroneously convey borrowers the message that the central governments will bail out subnational governments. And third, direct control by national governments about subnational debt and type of expenditure to be financed could become ineffective due to the lack of adequate information and the excessive administrative burden for monitoring it. 3) Fiscal rules approach Under this approach, fiscal discipline is organized under ex ante rules that establish limits on certain fiscal aggregates that condition subnational governments’ budgetary behavior. This approach has the clear advantage of transparency and avoids the necessity of relying on bureaucratic processes. However, it can prove inflexible during financial crises.   The taxonomy of fiscal rules is large. A first distinction is between numerical rules and procedural rules. Numerical rules set quantitative limits or targets that constrain governments’ fiscal policy. These limits are usually defined as ratios that combine some indicator of fiscal performance with respect to GDP. Procedural rules require governments to set up a fiscal policy strategy for the short, medium, and long term, and to publish annual reports

Fiscal aspects of subnational governments  15 with fiscal outcomes and relevant changes that allows monitoring possible deviations. They aim to enhance transparency, accountability, and fiscal management. Most OECD countries have implemented fiscal frameworks that combine various numerical rules with procedural rules. The most widely used fiscal rules are budget balance rules, borrowing or debt limits, and expenditure ceilings. ● Budget balance rules set a quantitative limit on governments’ budgetary deficit. They can set a zero-deficit target (“balanced budget”), a maximum permissible deficit, or even a budget surplus. The design of these rules presents some challenges, standing out the following two: the time horizon to comply with the rules and the concrete budget concept under scrutiny (i.e., primary or structural budget balance, off-balance resources, etc.). Budget balance rules are quite often complemented with the “golden rule” that says that borrowing can only be used to finance capital investment projects. ● Debt rules can have different manifestations: debt ceilings or limits on total borrowing, limits on new debt issuing, limits on debt service expenditure, limits on the debt use (as the “golden rule” above), or limits on the lender (whether lenders can be foreign entities). They are mostly expressed as percentage of GDP or as a share of sub-central total or current revenues. In rare cases they are set in absolute terms (OECD/KIPF, 2016). ● Expenditure rules involve quantitative limits on government spending with the ultimate objective of avoiding excessive budget imbalances and debt generation. These rules can be designed to pose a limit on the general expenditure level or in order to set an expenditure growth ceiling. In this last case a usual design is to limit expenditures growth to any variable on growth economy (nominal or real GDP growth). Sometimes expenditure rules can be referred to the total expenditure or only to current spending if investment spending is to be protected. Although in terms of popularity the rules-based approach is the most commonly used, the analyses performed in the economics literature show that no approach about fiscal discipline dominates the rest in terms of effectiveness and all of them show advantages and disadvantages. Ultimately, successful fiscal discipline at the subnational level may depend more on the strength with which the rules are applied, the institutionalization of monitoring and enforcement mechanisms, and the effective application of sanctions than on the specific rules chosen and their design (Martínez-Vázquez & Vulovic, 2016).

1.3

MAKING FISCAL DECENTRALIZATION WORK: THE ROLE OF POLITICAL INSTITUTIONS

The ability to effectively manage expenditures and raise adequate levels of revenues is the core of sound fiscal governance not only for decentralized settings, but for unitary states as well. However, the coexistence of different layers of governments poses additional challenges for good governance, because the more actors are empowered, the more complex becomes achieving successful intergovernmental relations. Hence, we need to bear in mind the importance of political incentives in decentralization design (Eaton et al., 2011; OECD, 2021). In short, successful decentralization builds on more than traditional fiscal issues. In the previous section, we have dealt with the best practices for fiscal decentralization design, with the goal of ultimately leading to an efficient provision of public goods and services that also, and at the same time, best fit citizens’ geographically heterogeneous dis-

16  Handbook on subnational governments and governance tributed preferences. All in all, these described hard-law rules try to tackle four out of the five challenges depicted in the introduction as needs for sound fiscal governance: the assignment of expenditures and the allocation of revenues and taxing power, the implementation of an efficient and effective intergovernmental transfer system, and the design of fiscal and/or borrowing rules. The aim of this section is to briefly deepen the discussion about the necessity of also counting on political institutional arrangements able to make decentralization work. In fact, the gains of decentralization in terms of efficacy and efficiency seem significantly to depend on “how subnational authorities and intergovernmental relations are structured” (Hankla, 2008: 632; Goelzhauser & Konisky, 2020). The puzzle to be solved is how to arrive at an institutional framework that, beyond hard-law statements, is truly capable of achieving in practice intergovernmental cooperation, coordination, and loyalty (Skoog, 2005). To that end, the literature accepts the potential complementary positive role of informal political institutions (unwritten rules), which are capable of successfully achieving three goals: “fill gaps in formal institutions, coordinate the operation of overlapping (and perhaps clashing) institutions, and operate parallel to formal institutions in regulating political behavior” (Azari & Smith, 2012: 37). And for those aims to be fulfilled by informal political institutions, in our view, two (intertwined) features stand out. On the one hand, the literature has emphasized the crucial role of political actors (Ponce-Rodríguez et al., 2020). In this vein, previous research has found on average the superior positive role of national political parties over regional ones to achieve intergovernmental cooperation and coordination (Hankla et al., 2019). However, a strand in the literature focuses its attention on citizens’ political attitudes toward decentralization. First, because subjects’ preferences toward any policy under decentralization are mediated by their concrete views about decentralization itself, which ultimately may boost or diminish citizens’ compliance with legal mandates (Norris, 1999; Henderson et al., 2014; Hobolt & de Vries, 2016). Second, citizens’ judgements about any policy requires that they can identify which level of government is responsible for what policy (Cutler, 2004, 2013). A citizenry committed to decentralization that, at the same time, is able to identify the responsible layer of government on a single policy will incentivize a more efficient and effective behavior of political actors.

1.4

CONCLUDING REMARKS

We conclude this chapter by highlighting some important lessons in the design of fiscal decentralization and its successful implementation. From the start, fiscal decentralization policy design needs to be comprehensive, by addressing the four pillars of assignment of functional expenditure responsibilities, the assignment of sufficient revenue sources and autonomy, the system of intergovernmental transfers and credit and borrowing. However, as we have emphasized throughout the chapter, successful decentralization policies need to build on more than those traditional fiscal issues, including an electoral system and other forms of political accountability and a capable civil service and subnational administration. Although our focus has been on fiscal issues, successful decentralization is not only fiscal but also political and administrative decentralization. Democratic political institutions are visible, but the presence of administrative capacity is typically more difficult to ascertain. The lack of this form of

Fiscal aspects of subnational governments  17 capacity can be the most common reason for the failure of decentralized system to deliver as expected. In terms of the four pillars of fiscal decentralization, we have learned that “finance should follow function,” that is, the assignment of functional expenditure responsibilities should be the first step in the design, who will do what and how much will be needed to do that will determine to a large extent what the balance of own revenues, transfers and borrowing needs to be. And even though there is no such thing as the best assignment of functions, that assignment needs to show clarity of roles between levels of government and should be stable over time. On the revenue side, there is more than pure financing. Even though all subnational expenditures could be financed via transfers, the reason not to do so is that own revenue autonomy, suffering the political costs of raising their own taxes, makes subnational governments more accountable, spend more efficiently and behave more responsibly in a fiscal sense. Thus, a significant measure of revenue autonomy for subnational governments is crucial for realizing the efficiency potential of decentralized government. However, there is no revenue assignment that is likely to address all the financing needs of subnational governments. Inevitable vertical and horizontal fiscal imbalances arise in most decentralized systems, and therefore there will be a need to implement a system of transfers, including equalization grants to address disparities in needs and fiscal capacity across subnational governments. We have seen that transfers are used to pursue many other objectives. But we can conclude that, overall, there is no superior type of transfers instrument, from specific or block conditional grants to performance-based grants. Each of these instruments may work best depending on the objective and the type of program the central government pursues. We have also seen that subnational government borrowing is generally efficient and equitable, but it needs to be exercised prudentially and subnational governments must face a hard budget constraint. Last, we have seen that institution building is a necessary companion of decentralization. All in all, decentralization’s success depends on a sound governance design, but also on its implementation.

NOTES 1.

In this vein, pricing mechanisms (such as fees, charges, and taxes) can reveal important information to service providers about the “true” preferences of residents and thus facilitate more efficient allocations of resources. This is what is behind the general principle of benefit taxation at the subnational level in the theory of fiscal federalism. 2. Note that not all taxes can be easily shared on a derivative basis. Some taxes, such as corporate income tax, show great difficulties to allocate territorially tax bases. Others, such as the consumption tax, although difficult, it is possible to find a share indicator using the share of regional consumption in GDP. Others, such as the personal income tax, have tax bases with a simpler and identifiable distribution 3. An extensive description of these methodologies can be found in Ponce-Rodríguez et al., 2020. 4. OECD National Accounts distinguishes five categories of debt, classified according to the different types of creditors: loans, bonds, commercial debt, currency and deposits and insurance reserves (OECD/KIPF, 2016). 5. In Spain after the Great Recession the central government replaced banks as the main lender for subnational government with the so-called Additional Liquidity Mechanism, which represented nearly 40% of regional debt. In Ireland and the United Kingdom, the central government is also a large lender. In Nordic countries, Western countries and Japan have established local funding

18  Handbook on subnational governments and governance financial institutions or banks that provide advantages to smaller governments as low-cost funding and technical development assistance with lending activities. 6. In decentralized systems with a large share of equalizing transfers, there may be incentives for some subnational governments to reduce their tax effort to limit their contribution to the equalizing transfer or to overspend to achieve greater benefits from it. 7. This approach is used in just a few highly developed countries, prominently the United States and Canada. 8. Most OECD countries have some kind of national restriction on subnational debt, although it is more frequently in unitary countries and in those at early stages of decentralization. A good classification of these controls can be seen in OECD/KIPF, 2016. In some federal countries (Austria, Canada) regions or states often enjoy great borrowing autonomy, but local debt is generally subject to stricter controls.

REFERENCES Ahrend, R., Curto-Grau, M., & Vammalle, C. (2013). Passing the buck? Central and sub-national governments in times of fiscal stress. OECD Regional Development Working Papers, 2013/05, OECD Publishing. Aiello, F., Bonnano, G., & Capristo, L. (2018). Explaining differences in efficiency. A meta-study on local government literature. MPRA Paper No. 88982. Azari, J.R., & Smith, J.K. (2012). Unwritten rules: Informal institutions in established democracies. Perspectives on Politics, 10(1): 37–55. Bahl, R. W., & Martinez-Vazquez, J. (2022). Perspectives in fiscal decentralization: Challenges and the unfinished agenda. Perspectives in Fiscal Decentralization: Challenges and the Unfinished Agenda. Canadian Tax Journal/Revue fiscale canadienne, 70: 69–96. Bell, D. (1987). The World and the United States in 2013. Daedalus, 116(3): 1–31. Bird, R.M. (1993). Threading the fiscal labyrinth: Some issues in fiscal decentralization. National Tax Journal, 46(2): 207–227. Bird, R.M., & Bahl, R. (2008). Subnational taxes in developing countries: The way forward. Public Budgeting & Finance, 28(4): 1–25. Boadway, R., & Shah, A., eds. (2007). Intergovernmental Transfers: Principles and Practice. The World Bank. Boadway, R., & Shah, A., eds. (2009). Fiscal Federalism: Principles and Practice of Multiorder Governance. Cambridge University Press Canavire-Bacarreza, G., Martínez-Vázquez, J., & Yedgenov, B. (2020). Identifying and disentangling the impact of fiscal decentralization on economic growth. World Development, 127: 104742. Cutler, F. (2004). Government responsibility and electoral accountability in federations. Publius: The Journal of Federalism, 34(2): 19–38. Cutler, F. (2013). Political conditions for voting with responsibility under multi-level governance. In European Consortium for Political Research Conference. Burdeaux: France, September 2013. De Biase, P. & Dougherty S. (2022) The past and future of subnational fiscal rules: an analysis of fiscal rules over time. OECD Working Papers on Fiscal Federalism No. 41. Desmet, K., Ortuño-Ortín, I., & Özak, Ö. (2022). Is secessionism mostly about income or identity? A global analysis of 3,003 subnational regions. NBER Working Paper 30428. Eaton, K., Kaiser, K., & Smoke, P. (2011). The Political Economy of Decentralization Reforms. The World Bank. Goelzhauser, G., & Konisky, D. M. (2020). The states of American Federalism 2019–2020: Polarized and punitive intergovernmental relations. Publius: The Journal of Federalism, 50(3): 311–343. Hankla, C.R. (2008). When is fiscal decentralization good for governance? Publius: The Journal of Federalism, 39(4): 632–650. Hankla, C. R., Martínez-Vázquez, J. & Ponce-Rodríguez, R. A. (2019). Local Accountability and National Coordination. Edward Elgar Publishing. Hayek, F.A. Von (1945). The use of knowledge in society. American Economic Review, 35(4): 519–530.

Fiscal aspects of subnational governments  19 Henderson, A., Jeffery, C., & Wincott, D. (eds) (2014). Citizenship after the Nation State. Palgrave Macmillan. https://​doi​.org/​10​.1057/​9781137314994​_7 Hobolt, S.B., & de Vries, C.E. (2016). Public supports for European integration. Annual Review of Political Science, 19: 413–432. Jong, D., Tsvetkova, A., Lembcke, A. C., & Ahrend, R. (2021). A comprehensive approach to understanding urban productivity effects of local governments. OECD Regional Development Working Papers No. 11. https://​doi. org/10.1787/5ebd25d3-e. Kaufmann, D., & Kraay, A. (2007). Governance indicators: Where are we, where should we be going? Policy Research Working Paper No. 4370. World Bank. Kaufmann, D., Kraay, A. & Mastruzzi, M. (2010). The worldwide governance indicators: Methodology and analytical issues. Policy Research Working Paper No. WPS 5430. World Bank. Lockwood, B. (2009). Political economy approaches to fiscal decentralization. In E. Ahmad and G. Brosio, eds., Does Decentralization Enhance Service Delivery and Poverty Reduction? Edward Elgar Publishing, pp. 79–101. Martínez-Vázquez, J. (2015). Tax assignments at the regional and local levels, in E. Ahmad and G. Brosio, eds., Handbook of Multilevel Finance, Edward Elgar Publishing, pp. 358–388. Martínez-Vázquez, J., & McNab R.M. (2003). Fiscal decentralization and economic growth. World Development, 31(9): 1597–1616. Martínez-Vázquez, J., & Searle, B., eds. (2007). Fiscal Equalization: Challenges in the Design of Intergovernmental Transfers. Springer. Martínez-Vázquez, J., & Timofeev, A. (2007). Reforming the Assignment of Functional Responsibilities Principles and a Practical Guide. Mimeo. Martínez-Vázquez, J., & Timofeev, A. (2009). Decentralization measures revisited. ISP Working Paper No. 09-13 Martínez-Vázquez, J. & Vulovic, V. (2016). How well do subnational borrowing regulations work? ADBI Working Paper No. 563. Martínez-Vázquez, J., Lago-Peñas, S., & Sacchi, A. (2016). The impact of fiscal decentralization: A survey. Journal of Economic Surveys, 31(4): 1095–1129. Mattoon, R. (2003). Creating a national state rainy day fund: A modest proposal to improve state fiscal performance. Working Paper 2003-20, Federal Reserve Bank of Chicago. Musgrave, R.A. (1959). The Theory of Public Finance. McGraw Hill. Norris, P. (1999). Critical Citizens: Global Support for Democratic Government. Oxford University Press. Oates, W.E. (1972). Fiscal Federalism. Harcourt Brace Jovanovich. Oates, W.E. (2005). Toward a second-generation theory of fiscal federalism. International Tax and Public Finance, 12: 349–373. OECD. (2019). Making Decentralization Work: A Handbook for Policy-Makers. OECD Publishing. https://​doi​.org/​10​.1787/​g2g9faa7​-en OECD. (2021). Fiscal Federalism 2022: Making Decentralization Work. OECD Publishing, Paris. https://​doi​.org/​10​.1787/​201c75b6​-en OECD/KIPF. (2016), Fiscal Federalism 2016: Making Decentralization Work. OECD Publishing. http://​ dx​.doi​.org/​10​.1787/​9789264254053​-en Olson, M. (1969). The principle of fiscal equivalence: The division of responsibilities among different levels of government. American Economic Review, 49: 479–487. Ponce-Rodríguez, R. A., Hankla, C. R., Martínez-Vázquez, J., & Heredia-Ortiz, E. (2020). The politics of fiscal federalism: Building a stronger decentralization theorem. Journal of Theoretical Politics, 32(4): 605–639. Rodden, J. (2004). Comparative federalism and decentralization: On meaning and measurement. Comparative Politics, 36(4): 481–500. Rodden, J., Eskeland, G.S., & Litvack, J. (2003). Introduction and overview. In J. Rodden, G. S. Eskeland and J. Litvack, eds., Fiscal Decentralization and the Challenge of Hard Budget Constraints, The MIT Press, pp. 3–31. Rodríguez-Pose, A., & Muṧtra, V. (2022). The economic returns of decentralization: Government quality and the role of space. EPA: Economy and Space, 54(8): 1604–1622.

20  Handbook on subnational governments and governance Shah, A. (2006). A practitioner’s guide to intergovernmental fiscal transfers. World Bank Policy Research Working Paper No. 4039. Shah, A., Rezende, F., Rajaraman, I., & Rao, G.. (2006). Emerging Issues in Fiscal Federalism: An Overview of the Principles and the Practice. 4th Conference in Fiscal Federalism. Skoog, G.E. (2005). Supporting the development of institutions – formal and informal rules. UTV Working Paper, 2005(3). Slack, E. (2019). Metropolitan governance: Principles and practice. Discussion Paper IDB-DP-659. Ter-Minassian, T. (2007). Fiscal rules for subnational governments. OECD Journal on Budgeting, 6(3): 1–11. Ter-Minassian, T. (2020). Intergovernmental fiscal cooperation and subnational revenue autonomy. Inter-American Development Bank Discussion Paper No. IDP-DP-748. pp. 1–41. Ter-Minassian, T., & Craig, J. (1997). Control of subnational government borrowing. In Teresa Ter-Minassian, ed., Fiscal Federalism in Theory and Practice. International Monetary Fund, pp. 156–172. Tiebout, C.M. (1956). A pure theory of local expenditures. The Journal of Political Economy, 64(5): 416–424. Vammalle, C., & Hulbert, C. (2013). Sub-national finances and fiscal consolidation: Walking on thin ice. OECD Regional Development Working Papers 2013/2. Weingast, B.R. (2009). Second generation fiscal federalism: The implications of fiscal incentives. Journal of Urban Economics, 65: 279–293. Weingast, B.R. (2013). Second generation fiscal federalism: Political aspects of decentralization and economic development. World Development, 53: 14–25. World Bank. (1992). Governance and Development. World Bank. https://​doi​.org/​10​.1596/​0​-8213​-2094​ -7

2. Innovation in sub-national governments David B. Audretsch

2.1 INTRODUCTION A generation ago, innovation was considered to be a concern for the largest industrial corporations dominating global manufacturing markets. Most of the industrial research and development (R&D) was undertaken by the globally dominant companies (Chandler, 1977 and 1990). While the economic performance of specific cities, regions and provinces may have depended largely on the presence of such global manufacturing companies, the innovative performance lies more within the sphere of corporate strategy than in the strategy management of the place. However, innovation has become considerably more ubiquitous, and spilled out far beyond the corporate boundaries. Rather, it has become a community-based phenomenon, drawing on the resources, energy and passion of the place and not just company (Audretsch, 2015). As innovation has become a priority for cities, provinces and regions, a new form of sub-national governance has emerged. The purpose of this chapter is to provide an analysis of sub-national governance for innovation. The following section considers the locus of governance. The role of institutions, policies and instruments is analyzed in the third section. In the fourth section the process of sub-national governance across spatial contexts is explained. Finally, in the last section a summary and conclusion are provided. In particular, this chapter concludes that a new role has emerged for sub-national governance to create an institutional and policy context that is conducive to innovation and entrepreneurship.

2.2

THE LOCUS OF GOVERNANCE

The governance of innovation was originally posited to lie outside the realm of public policy. Rather, innovation and its governance were widely held to fall within the realm of private firms and individuals. Robert Solow (1956) was awarded the Nobel Prize in economics for his insight that innovation, which he termed as technical change, was a random and stochastic process beyond the influence of strategy or planning, in that it falls like “manna from heaven”. This left little role for the governance of innovation outside of the boundaries of the firm. “Manna from heaven”, or luck, lie more in the sphere of religion or superstition rather than public governance. As focus on innovation became a priority, attention was generally directed with the locus of governance of the firm rather than beyond its boundaries. In particular, firm governance revolved around investment strategies in new knowledge, such as R&D and human capital. According to the model of the knowledge production function for innovation (Griliches, 1979), innovative activity was the output from purposeful investments in new ideas and knowledge. This changed the view of innovation from being exogenous and outside of the influence of the organization to being endogenous and, therefore, impacted by organizational strategy and governance (Romer, 1986). 21

22  Handbook on subnational governments and governance However, it also became clear that local and regional governance could also play an important role in shaping innovation in two important ways. The first is through the externalities inherent in knowledge. In his pathbreaking article on what distinguishes knowledge from other economic goods, Arrow (1962) emphasized the propensity for knowledge to embody the characteristics of a public good, in that it is accessible to all and cannot be fully appropriated by the producer of that knowledge. However, what received considerably less attention were three other characteristics inherent in new knowledge. The first is a high degree of uncertainty, suggesting that whether a new product or service can actually be produced or offered is not known. The second is a high degree of asymmetries concerning that knowledge, so that significant variation exists about the valuation of that knowledge across agents and organizations. The third characteristic is a high cost of transacting the valuation of that knowledge across agents and organizations, so that significant differences in the valuation of that knowledge remain in the long run. The response to Arrow’s (1962) insight on knowledge was initially a preoccupation with the public aspect, implying a chronic underinvestment in knowledge due to the inability to appropriate returns accruing from knowledge investments. After all, if the resulting knowledge and ideas could be accessed and absorbed at no cost, why incur the cost? Simply let the other guy do it. However, the characteristics of high uncertainty, asymmetries and transaction costs reflect that the valuation is based more on tacit than on codified knowledge. Here the role of geography and spatial location comes into play. Information, which is codified, can be transmitted across geographic space at zero marginal cost thanks to the internet and world wide web. However, the transmission and access of tacit knowledge requires geographic proximity and therefore tends to cluster within close spatial proximity to the knowledge source. The theory of knowledge spillovers explains why investments in new knowledge tend to spill over for access to third-party organizations and individuals. However, the theory of localization explains why geographic proximity is required to access and absorb the spillover of knowledge (Audretsch, 2015). Thus, the foundation for innovation governance at the sub-national level is the high propensity for knowledge to spill over from the source investing in and creating that knowledge for access by third-party organizations and individuals, but also for that same knowledge to decay as it traverses geographic space (Audretsch, 2015). Local, regional and provincial governments have the potential to leverage the inherent spatial localization of knowledge to enhance economic performance from two distinct channels. This first is to invest and attract investments from other sources in knowledge creation activities, such as, training. The second is to create a local context that facilitates the spillover of knowledge. Both of these will enhance the economic performance of the place through increased innovative activity, and, at the same time, render that place more competitive through locational specific attributes, where access requires geographic presence (Audretsch, 2007).

2.3

INSTITUTIONS, POLICIES AND INSTRUMENTS

To enhance innovative activity, sub-national levels of governance have an arsenal of institutions, policies and instruments at their disposal. In terms of strategy, there are four key dimen-

Innovation in sub-national governments  23 sions that can shape place-based innovative activity and ultimately economic performance (Audretsch, 2015). The first involves factors and resources, which are essentially ingredients into the production, but more specifically, innovative process. The second involves the configuration of those factors and resources, along with the ensuing output, in geographic space, or what is characterized as spatial structure and organization. The third source shaping economic performance is the behavior of people and organizations at that place, or what is characterized as the human dimension. Finally, public policy influences economic performance by changing the other three dimensions. Each of these four pillars or dimensions leverages a myriad of institutions, policies and policy instruments in an effort to enhance economic performance (Audretsch, 2015). The first dimension shaping economic performance emanates from the model of the production function, of which the Nobel Prize Laureate Milton Friedman famously explained that, “There’s no such thing as a free lunch”. To generate outputs, inputs are required. Those inputs, or factors of production, generally revolve around natural resources, physical capital and labor. Like other types of economic activity, innovation also is the result of inputs and factors of production. However, those inputs and factors of production generating innovation activity typically revolve around knowledge and new ideas. In an extension of the model of the production function, Griliches (1979) posited the model of the knowledge production function, which links knowledge inputs, such as R&D and human capital, to innovative outputs. More recently, such knowledge resources and factors have been characterized as talent and the creative class (Audretsch, 2015). The second dimension focuses not on the quantity or presence of critical factors and resources, but rather their complementarities, or on their spatial structure and organization. Specific spatial configurations of economic activity have been posited, and supported by compelling empirical evidence, to enhance the impact of those factors and resources. For example, Porter (1998) has long championed the efficacy of spatial clusters, with the goal of enhancing the output from a given level of inputs. Clusters generally consist of horizontal and vertical complementarities of economic activities. Examples abound of compelling and highly successful clusters of economic activity that have generated innovative activity. The Silicon Valley cluster of software and information technology ranks among the most innovative places in the world. Less prominent examples of successful innovation clusters abound – for example, the medical device cluster in Warsaw, Indiana, life sciences in San Diego, or the aerospace cluster in Birmingham, Alabama. The point is that the economic performance of both the firms but also the region would not be as strong, even if the identical factors and resources were in place. Rather, it is the complementarities that drive enhanced innovative activity and ultimately economic performance. Other types of spatial structure and organization include a specialization of economic activity in just one or several industries. Spatial specialization is posited to be conducive to enhanced innovative activity by reducing transactions costs and increasing scale economies. Alternatively, diversity of economic within complementary activities is alternatively posited to positively impact spatial innovative activity (Jacobs, 1969). According to this view, it is heterogeneity that fuels the spillover of knowledge and ideas across agents and people. If every organization and individual is engaged in the identical activity, there is little to be learned from working and engaging with the community, thus limiting the potential of knowledge externalities.

24  Handbook on subnational governments and governance While some theories focus on the gains to innovation emanating from monopoly and market power, others prioritize exactly the opposite – entrepreneurship. The case for market power rests on incentives to invest in new knowledge. Possessing market power enables organizations making investments in new knowledge to appropriate more of the returns accruing from those investments. By contrast, the case for entrepreneurship rests on the incentives for entrepreneurs to create new organizations to appropriate knowledge generated but not commercialized by legacy organizations. Entrepreneurs provide the conduit for the spillover of knowledge from the organization creating it to a new organization commercializing it through innovative activity. The difference between the market power and entrepreneurship argument lies in the capacity for legacy organizations enjoying market power to actually be able to recognize and act on new knowledge and ideas that results in innovation. Because such knowledge is inherently uncertain, asymmetric and characterized by high transaction costs, divergences in the evaluation of new ideas result in variations in assessing the innovation potential of knowledge. A plethora of valuable innovations have been rejected within the organizational boundaries of legacy organizations due to their inability to correctly assess the value of knowledge. The third dimension influencing innovation at the local level is the behavior of people and organizations located at the particular place, or what is characterized as the human dimension. Among the numerous ways in which behavior impacts innovation is through linkages, networks, interactions and interfaces among people (Coleman, 1988; Putnam, 2000). Such networks and linkages enhance the exchange of knowledge and ideas, which underpins knowledge spillovers across organizations and individuals. Those communities with rich and thick networks are able to generate more innovative activity than are their counterparts with a paucity of interactions and interfaces. A different aspect of the human dimension is leadership. A place with inspiring leadership has the capacity to induce people and organizations to commit to and invest themselves in that place in ways that they otherwise might not. Just as leadership does at the individual and organizational levels, it enables a coordination of a common good, which is collective place-specific investments. If multiple actors, both individual and organizational, undertake the requisite key investments, particularly in new knowledge, they will be able to appropriate a return, both collectively but also individually, on those investments. Effective leadership solves the problem of the commons. The identity of a place held by people and organizations at that place influences their behavior, just as that held by their counterparts outside of the place, or the image, also shapes behavior. Identity and image constitute what is more commonly referred to as a brand. Both people and organizations will tend to move to or remain in a place where they have a connection, which can be financial or emotional. To the extent that such connections are sunk, the cost of moving to a different location is expensive. The fourth dimension influencing the innovative and economic performance of a sub-national place is public policy, which is formulated by a broad range of organizations, institutions and individuals either mandated or having an interest with ensuring a strong performance for their place. Public policy shaping the innovative performance of a place is influenced by government agencies, civic and political leaders, non-profit organizations and private companies. The common denominator is their interest in the innovative performance. Place-based strategy involves assessing locational strengths and challenges in terms of the factors and inputs, spatial structure and organization and the human dimension, and then identifying ways in which the various aspects involving each dimension can be improved to

Innovation in sub-national governments  25 enhance the innovative performance. For each strategy numerous policy instruments are available. At the same time, any particular policy instrument can contribute to multiple strategies. Thus, the policy instruments and their underlying strategies are overlapping and not mutually exclusive. It is also important to recognize that many, if not most, policy instruments may not be explicitly linked to the policy strategy but can work either in support of or against the particular policy strategy. The key is the impact of policy instruments and the commensurate strategies and not their superficial categorization.

2.4

GOVERNANCE DIFFUSION

Like fashion, priorities, procedures and methods of sub-national governance diffuse across geographic space and over time. In terms of priorities, the focus of sub-national governance was on particular resources and factors of production for decades during the previous century – physical capital and unskilled labor. During the second industrial era, which is generally gauged to have lasted a century until the start of the 1970s, economic performance was largely shaped by physical capital and unskilled labor combined in the mass production of manufactured goods. Sub-national governance correspondingly focused on either attracting or preserving physical capital at that place as the key strategy to sustain economic performance. With the transition to the third industrial era, the driving force of competitiveness shifted from size and scale (Chandler, 1990) to innovation. Public policy in the entrepreneurial society correspondingly shifted from constraining the freedom of firms to contract, to creating a context that would enable people and organizations to discover, create and commercialize new opportunities, that is, to behave entrepreneurially. Thus, sub-national governance became predicated on pro-active government policy with a focus on policy strategies and instruments enabling investments in knowledge and entrepreneurship. The active and enabling role of public policy is the antecedent for the entrepreneurial ecosystem, with the primary focus on a pro-active role for government policy to create a context conducive to entrepreneurial activity. There are two pivotal functions provided by sub-national governance, both of which are focused on generating innovation through entrepreneurship. The first is to induce investments in new knowledge, either directly through government funded research and education, or more typically indirectly, through private sector R&D and training for human capital. The second key function for the governance at the sub-national level is to facilitate knowledge spillovers by creating a context conducive to entrepreneurship. Knowledge spillover entrepreneurship generates innovation through the commercialization of knowledge and ideas created in the organizational context of a legacy firm but not utilized by that organization. Thus, the role of government policy at the sub-national level is to enhance both investments in knowledge and the commercialization of those knowledge investments through knowledge spillover entrepreneurship. The twin governance strategies of enhancing investments in new knowledge and commercializing that knowledge through policy strategies such as clusters, the creative class and entrepreneurial ecosystems, have diffused across the globe. As sub-national regions, including cities, provinces and regions, have become aware of the success of sub-national governance strategies to spur innovation through knowledge and entrepreneurship made apparent by the

26  Handbook on subnational governments and governance success of sub-national regions such as Monterrey in Mexico, Stockholm in Sweden, Randstad in the Netherlands, Salvador de Bahía in Brazil and Cordoba in Argentina, the sub-national model of innovation through knowledge and entrepreneurship is rapidly diffusing across the globe.

2.5 CONCLUSIONS Innovation varies substantially across geographic space. One reason for the spatial variation of innovative activity is institutions and (local) governance. As local governments become aware that not only does innovative activity vary from place to place, but that it also matters, they are responding with a new priority to harness the forces of innovation to bestow their place with an innovative advantage. This chapter has explained how and why governance at the sub-national region has emerged as a key driver of innovative activity. The new priority for innovation at the sub-national level requires a new role for local governance. As innovation increases in importance, sub-national governance requires a more pro-active policy contribution. Governments at the local, city, provincial and regional levels make all the difference in the innovative performance of their place. Demircioglu and Audretsch (2023) and Audretsch, Siegel and Terjesen (2020) also suggest that this new role for sub-national governance involves embracing innovation and entrepreneurship in its managerial approach and practice. As Audretsch, Belitski and Herzig (2022) suggested, managerial models prioritizing improvisation and creativity are more conducive to innovation entrepreneurship. Future research will undoubtedly uncover new and important ways that sub-national governance fosters local innovation. The promise of innovation as a force to lift society beyond its current limitations rests to a considerable extent in the imagination to re-think the role of sub-national governance.

REFERENCES Arrow, Kenneth, 1962, Economic Welfare and the Allocation of Resources for Invention, in Richard R. Nelson, (ed.), The Rate and Direction of Inventive Activity (Princeton University Press). Audretsch, David B., 2007, The Entrepreneurial Society (Oxford University Press). Audretsch, David B., 2015, Everything in its Place: Entrepreneurship and the Strategic Management of Cities, Regions and Countries (Oxford University Press). Audretsch, David B., Donald S. Siegel and Siri Terjesen, 2020, “Entrepreneurship in the Public and Nonprofit Sectors,” Public Administration Review, May/June, 469–472. Audretsch, David B., Maksim Belitski and Monika Herzig, 2022, “Improvisation and Innovation in Teams: The Jazz Effect,” British Journal of Management, on-line at https://​doi​.org/​10​.1111/​1467​ -8551​.12588 Becker, Gary S., 1964, Human Capital: A Theoretical and Empirical Analysis, with Special Reference to Education (University of Chicago Press). Chandler, Alfred, 1977, The Visible Hand: The Managerial Revolution in American Business (Belknap Press). Chandler, Alfred, 1990, Scale and Scope: The Dynamics of Industrial Capitalism (Harvard University Press). Coleman, James J., 1988, “Social Capital in the Creation of Human Capital,” American Journal of Sociology, 94, 95–121.

Innovation in sub-national governments  27 Demircioglu, Mehmet and David B. Audretsch, 2023, Public Sector Innovation (Cambridge University Press). Griliches, Zvi, 1979, “Issues in Assessing the Contribution of Research and Development to Productivity Growth,” Bell Journal of Economics, 10, 92–116. Jacobs, Jane, 1969, The Economy of Cities (Vintage Books). Porter, Michael, 1998, “Clusters and the New Economics of Competition,” Harvard Business Review, November–December. Putnam, Robert, 2000, Bowling Alone: The Collapse and Revival of American Community (Simon and Schuster). Romer, Paul, 1986, “Increasing Returns and Long-Run Growth,” Journal of Political Economy, 94(5), 1002–1037. Solow, Robert, 1956, “A Contribution to the Theory of Economic Growth,” Quarterly Journal of Economics, 39, 312–320.

3. Subnational political tensions Kent Eaton

3.1 INTRODUCTION Dominated by economists, much of the early literature on decentralization extolled the many possible benefits to be derived from transferring authority and resources to subnational governments. Due to their greater proximity to people, these governments could offer more tailored responses to local problems, and if voters were not satisfied with these responses, they could vote with their feet by moving to other jurisdictions (Musgrave 1959; Oates 1972). Devolving administrative responsibilities and fiscal revenues would necessarily transform the role of the center, but the new division of labor between national and subnational governments should give rise to new patterns of intergovernmental cooperation and collaboration as each level of government adjusts to the new dispensation (Rondinelli 1981). Subnational governments would play more direct roles in service provision just as national bureaucrats refocused their efforts on more arms-length roles like supervision, oversight, and coordination. This need for enhanced intergovernmental coordination in the post-decentralization era is especially acute given that, in most real-world settings, decentralization did not always assign exclusive powers over an entire policy field to either the subnational or national level; instead, subnational and national officials most commonly share responsibilities within the same field of policy (Eaton, Kaiser and Smoke 2010). While this essentially technocratic vision has – for good reason – placed the onus on intergovernmental cooperation and coordination in the aftermath of decentralization, the unfolding of this governance trend around the world has instead just as often resulted in the opposite dynamic: intergovernmental conflict and contestation. Rather than encouraging cooperation between national and subnational officials who come together in a spirit of jointly improving governance outcomes for their constituents, decentralization has frequently led to territorial conflict and dissonance (Dickovick 2007; Eaton 2017; Fenwick 2015; Niedzwiecki 2018). Thus, a more comprehensive, relevant, and accurate understanding of subnational governments and governance, the goal of this handbook, requires that we start with the political incentives and motivations facing politicians at all levels of government in order to explain why political conflict seems to be the more frequent byproduct of decentralization than the much-hoped-for cooperation. Politicians at the center who signed off on decentralization policies – or their successors in office – have had a difficult time compelling subnational officials to use their newfound powers in ways that always align with national-level preferences. The result is a far messier, but vastly more interesting, political landscape in which subnational governments cannot be so easily dismissed, ignored, or coopted. Making sense of this new world requires the insights that political scientists have brought to bear in recent years in the study of decentralization, a literature that I draw on in the discussion below in the attempt to complement the important and earlier insights from scholars of public administration (Faguet 2013; Falleti 2010; O’Neill 2005; Rodden 2005). The scope of this chapter is intentionally broad and not limited to any specific world region. Although the design of decentralization 28

Subnational political tensions  29 varies from country to country, along with the amount of authority that is thereby actually devolved, my central claim is that whenever countries move in the direction of enhancing the governmental role of subnational authorities they are increasing at least the potential for greater intergovernmental friction than was possible in the highly centralist past. By the term “subnational political tensions,” this chapter refers to political friction between national and subnational governments along the vertical axis of governance. While these tensions take many distinct forms, for purposes of tractability it can be useful to conceptually distinguish between two different types of friction. The first results when the officials who preside over subnational governments try to use their enhanced powers and privileges to act within their territorial jurisdictions in ways that are not necessarily sanctioned by the center, and that may directly contradict central imperatives. In extreme cases, the aggressive pursuit of policymaking preferences that deviate from what the center wants may pose fundamental challenges to the Weberian understanding of the state as an organization that is able to implement policy uniformly across the national territory (Giraudy and Luna 2017; Soifer 2015). The second type of tension results when subnational governments try to leverage their newfound political salience not just within their own districts but beyond them as a new kind of lobby vis-à-vis key decision-making arenas at the national level (Falleti 2010; Goldfrank and Schrank 2009; Malesky 2008). While the following discussion emphasizes tension between the national and subnational levels, it is also the case that decentralizing reforms have broadened the scope for tension between different subnational governments at the intermediate and local levels. In other words, even as mayors and governors are increasingly embattled with presidents, they are also more frequently challenging one another in conflicts that are just as vertical in nature, but at a lower level in the hierarchy of governance. Although they share a subaltern position in the hierarchy relative to the national government, which can in theory facilitate cooperation, governors at the intermediate level of government can and do also engage in conflict with one another in the search for advantage. Furthermore, this can be true in unitary and not just federal cases, as many unitary countries have moved in recent decades to introduce and/or strengthen intermediate-level governments without formally federalizing (Hooghe and Marks 2016). Federalism, of course, can further embolden subnational challengers relative to unitarism, but it would be a mistake to overlook the growing expression of subnational political tensions in unitary cases. In order to provide a broad and synthetic survey of subnational political tensions, this chapter proceeds as follows. In the next section, I examine three key drivers that help explain why so many otherwise different countries have similarly come to experience more acute subnational political tensions. Decentralization itself is the most important driver as a governance trend that provides the necessary but not sufficient condition for intergovernmental conflict. But it is also important to look beyond decentralization to examine how two other global trends – democratization and liberalization – have also set the stage for deeper subnational political tensions. Having explained why we are seeing greater intergovernmental conflict and contention in so many countries around the world, the last section of the chapter then examines the variety of coalitions – both horizontal and vertical – whose formation can powerfully shape the evolution and potential resolution of subnational political tensions. If the number and relative political independence of governmental stakeholders at the subnational level has increased, then it becomes important to ask whether these stakeholders build or fail to build coalitions to navigate the tensions that have been unleashed by decentralization.

30  Handbook on subnational governments and governance

3.2

SOURCES OF TENSION: KEY DRIVERS THAT EXACERBATE INTERGOVERNMENTAL CONFLICT

The “whole nation bias” that long characterized the subfield of comparative politics encouraged scholars to privilege political conflicts that unfolded at the national level, whether these struggles pitted rival political parties against one another, legislators against chief executives, civilian politicians against military officers, or labor unions against business associations (Snyder 2001a; Giraudy, Moncada and Snyder 2019). Without detracting from the significance of conflicts waged in national capitals, it is increasingly apparent that we need to broaden our analytical lens to examine the more vertical conflicts that are taking place between national and subnational governments. But why exactly have these conflicts become more common? Though they have unfolded unevenly across national contexts and world regions, three critical global trends are likely responsible for the emergence of subnational political tensions. 3.2.1 Decentralization Notwithstanding the fact that decentralization comes in a number of different forms and has played out quite differently in different countries, it clearly deserves central billing in the story of why subnational political tensions have intensified. Consider the distinction that is often made between two of the most common types of decentralization: devolution and deconcentration. By transferring resources and responsibilities to separately elected subnational governments, it is perhaps more obvious how devolution would set the stage for conflict because subnational officials are no longer being appointed by the center but rather owe their positions to the voters who elect and re-elect them. But even when decentralization takes the less dramatic form of deconcentration, where national bureaucrats are deployed to offices outside the capital that remain politically accountable to the center, this shift can still generate sharp political tensions (Hutchcroft 2001). In marginalized subnational territories far from the center, the relocation of bureaucrats who represent the central state can offer local residents a clearer target against which to vent their grievances. In the wake of deconcentration, many countries have witnessed heightened tension between elected subnational officials and the nationally responsive bureaucrats who are now physically based in their districts but whom they do not control politically. It is also possible to appreciate the significance of decentralization as a source of tension by disaggregating this trend into its three main dimensions: political, administrative and fiscal. For a number of reasons, political decentralization represents the most radical shift because it requires national politicians to surrender the appointment mechanisms they could reliably use in the past to prevent transgressions by the officials they appointed to run subnational governments. In principal-agent terms, subnational officials were the mere agents of national principals. The introduction of subnational elections vastly increases the possibility of behaviors by subnational officials that could have been career ending when they served at the pleasure of national patrons – but that may be just what they need to do to curry favor with voters in their jurisdictions. In some cases, political decentralization has led to the emergence of new subnational parties that contest subnational elections in a single subnational district without participating in national elections or in neighboring districts. In other words, political decentralization can generate political tensions by working to denationalize the party system (Freidenberg and Suárez-Cao 2014). But even where decentralization does not set in motion

Subnational political tensions  31 these kinds of changes in the party system, it can still produce conflict – even among mayors, governors, and presidents who belong to the same party but who face different (and concentric) sets of constituents. In this fashion decentralization can worsen intra-party tensions. If political decentralization is the most desirable for subnational officials precisely because it frees them from the need to satisfy national patrons, administrative forms of decentralization are often considered far less desirable – especially where these officials would struggle to successfully provide the services being devolved. The phenomenon of unfunded mandates is a major source of subnational political tension as local officials bristle at the prospects of being put in charge of politically sensitive categories of expenditure, from schools to roads to hospitals (Falleti 2010). In contrast, administrative decentralization may especially appeal to national officials as a way to offload responsibilities they too have struggled to successfully provide, and also as a means of quickly reducing national budget deficits by devolving expenditures. Critical here is the territorially uneven nature of state capacity in many countries in the Global South, where subnational officials in parts of the country simply do not count on the kind of administrative capacity or bureaucratic competence that would be necessary to succeed in service provision (Luna and Soifer 2017; Niedzwiecki and Pribble 2023). Whereas the decision to transfer administrative tasks can be made from one day to the next, the accumulation of bureaucratic capacity is a much longer-term endeavor, and decentralization often took place without sustained attention to the underlying problem of insufficient subnational capacity. Tensions can also result when subnational governments try to tailor new responsibilities over services like education to accommodate cultural minorities in ways that may antagonize national majorities. Fiscal decentralization can also lay the groundwork for extensive recriminations between national and subnational politicians. Letting voters elect their own subnational officials and giving these officials important governance roles can be meaningless if they do not enjoy sufficient fiscal revenues, even as fiscal decentralization creates serious moral hazard problems (Rodden 2005; Wibbels 2005). Given both economies of scale in the collection of certain taxes and concerns about the inability of subnational governments to extract revenues locally, many countries that decentralized did so by relying heavily on revenue-sharing mechanisms rather than devolving tax bases. While automatic revenue transfers can significantly enhance the autonomy of subnational governments, these systems can also be designed in ways that maintain centralized control – to the great chagrin of subnational governments. Revenue sharing is often characterized by persistent struggles over the timeliness of transfers, rival interpretations of which taxes should feed the common pool for distribution, and strategic attempts by national governments to raise taxes that are not subject to sharing. From the perspective of the national government, revenue sharing enables the claim that subnational officials are “free riders,” paying none of the administrative or political costs of raising revenues but enjoying all of the benefits (Rondinelli 1981; Wibbels 2005). In those cases where fiscal decentralization took the form of devolving tax bases, including most commonly the assignment of property taxes to local governments, a typical complaint is that local officials demonstrate insufficient “tax effort,” and that incentives to encourage more vigorous local collection should even be incorporated into systems of revenue sharing (Rodden 2005). While each of the three dimensions of decentralization can thus generate distinct forms of conflict between national and subnational officials, the specific sequencing of these reforms can also be hotly contested, as suggested by Tulia Falleti’s (2010) sequential theory of decentralization. It is theoretically possible for the national government to simultaneously adopt

32  Handbook on subnational governments and governance decentralizing changes in all three of the dimensions discussed above, but more common is the adoption of different sequences of decentralization. According to Falleti, sequences that start with political decentralization can rapidly infuse legitimacy into subnational offices that can then be leveraged for advantageous changes in the other two dimensions (fiscal and administrative). In contrast, when the national government is able to begin the sequence with administrative measures in advance of subnational elections, the result is likely to be subnational grievances in the absence of significant leverage. More generally, precisely because decentralization involves the loss of power for national politicians, they may specifically seek to oppose introducing measures in all three dimensions. For instance, they may respond to demands for decentralization by allowing subnational elections but insist on keeping resources centralized, or by pursuing the opposite pattern: adopting fiscal decentralization but resisting the separate election of subnational officials (Eaton 2004). Given that decentralization typically requires movement along all three dimensions to achieve its full promise, partial decentralization can worsen the blame game between national and subnational politicians as each side seeks to avoid responsibility for negative governance outcomes. Even as decentralization remains a popular and ongoing trend around the world – with all the consequences for conflict discussed above – some countries that decentralized have subsequently experienced various forms of recentralization. These too can exacerbate subnational political tensions, especially where subnational officials feel that they are being scapegoated for the failure to make effective use of decentralized authority in an unreasonable time frame. The spate of recentralizing changes – so soon after countries decentralized – often speaks to the realty that politicians decentralized not due to normative commitment to the merits of subnational governance but rather for a range of baldly political reasons. These include the calculation that their parties would do well in subnational elections (O’Neill 2005), the desire to respond to short-term economic crises (Dickovick 2011), or the need to placate international donors (Eaton, Kaiser, and Smoke 2010). Recentralization can take a number of forms both overt and covert (Dickovick and Eaton 2013). These include the proscription of certain candidates from running for subnational elections (even where elections themselves are not formally canceled), the imposition of earmarks on fiscal transfers that effectively hollow out subnational autonomy, and the outright return of schools and hospitals to the ambit of the national government. Especially in countries characterized by weak institutions, the onset of recentralization so soon after decentralization has set in motion chronic and potentially destabilizing struggles over institutional design and redesign. 3.2.2 Democratization If, in hindsight, it is hard to imagine how decentralization would not have put a strain on intergovernmental relations, it is also the case that other macro factors are at play, including regime change and the widespread shift from authoritarian to democratic regime types that took place in the closing decades of the 20th century. On the one hand, it is important to resist overly simplistic assessments of authoritarianism as a regime type that denies any kind of subnational pluralism or contestation. Thanks to the literature on varieties of authoritarianism, we know that authoritarian regimes differed in their degree of centralization, in the roles that were assigned to subnational governments, and in the extent to which they engaged in the redesign of subnational institutions (Albertus 2015; Falleti 2011). In Latin America, for example, once military governments replaced subnational officials with their own loyal appointees, many of

Subnational political tensions  33 them then shifted important responsibilities down to the subnational level, with far-reaching consequences for the post-authoritarian period. Brazil in particular stands out as a case where, in the service of their own conservative goals, the generals allowed traditional elites in the states to exercise authority within those jurisdictions, agreeing to re-introduce gubernatorial elections well before presidential elections in a sequence that would profoundly shape the contentious and lengthy process of redemocratization (Abrucio 1998; Souza 1997). More recently, scholars have examined the persistence of authoritarianism at the subnational level within national democracies, resulting in situations of “regime juxtaposition” that can produce acute political tensions as national governments seek to determine whether and how to democratize subnational units (Gibson 2005; Gervasoni 2018; Giraudy 2015). On the other hand, authoritarian regimes often have tools for the suppression of subnational political tensions that are not usually available to democratic regimes, and democratization should be seen as a major global trend that broadened the scope for these tensions to emerge. Transitions to democracy can unleash both top-down and bottom-up pressures that heighten the political salience of subnational governments. In some cases of transition, it is the outgoing authoritarian regime that wishes to decentralize (as in South Africa) in the hopes of winning at least some subnational districts, while in other cases it is the democratizing forces that want to decentralize (as in the Philippines) to decrease the likelihood of a future authoritarian reversal at the center (Dickovick 2011; Shair-Rosenfield 2016). At the national level, the return to democracy can encourage political competitors to try to outmaneuver one another on the question of their responsiveness to subnational demands. When in the opposition, parties will often propose decentralization as a campaign promise, even if they may abandon it when they next win national office. In presidential systems, the separate election of the executive and legislative branches can produce interbranch conflicts that subnational actors are able to leverage for their own gain. Due to the fact that they are typically elected in subnational districts (which may or may not overlap with the jurisdictions governed by mayors and governors), national legislators themselves can be the conduit for the expression of subnational demands. At the bottom of the political system, democratization also tends to generate a more permissive environment for the expression of subnational demands and grievances, whether they are articulated within institutional channels or not. Around the world, subnational politicians find that there are electoral rewards to be reaped by campaigning against the national government and not just against each other. In the African context, for example, opposition victories in capital cities have generated sharp tensions between opposition mayors and the parties that control the central government (Resnick 2021). Borrowing from the literature on presidentialism, one concept that can be particularly fruitful in understanding how democratization has deepened political tensions between national and subnational governments is that of “dual democratic legitimacy” (Linz and Valenzuela 1994). Coined by Juan Linz in his critique of presidentialism and its separate election of the executive and legislative branches, the term can be adapted to refer to the separate election of national and subnational officials. Once they are elected in their own right, mayors and governors can credibly articulate a claim to democratic legitimacy that is not inferior to national executives. Here, there is a little-noted similarity between institutions designs that allow the national executives to appoint and dismiss subnational executives (i.e., before the adoption of political decentralization) and parliamentary systems in which the executive does not have a democratic origin separate from parliament. Just as there is no mechanism to resolve interbranch stalemates at the national level in presidential systems (other than impeachment),

34  Handbook on subnational governments and governance which was so central to Linz’s critique, it may be difficult to resolve clashes between national and subnational officials who share policymaking authority in a given field of action. Dual democratic legitimacy is especially likely to produce strains between national and subnational governments when the candidates who win office at these different levels belong to different political parties. Here, it can be useful to adapt the concept of “divided government,” which typically refers to the horizontal level in the sense of different parties controlling the executive and legislative branches of the national government. Because this is not possible under parliamentarism, there are good reasons to expect that vertically divided governments may be an even more common phenomenon than the horizontally divided governments emphasized in the literature. This reality focuses our attention on the importance of partisan alignment and the degree to which officials in multilevel systems (e.g., presidents, governors, and mayors) share partisan identities. According to Niedzwiecki (2018), partisan dealignment may create strong incentives for subnational politicians to do what they can to subvert rather than facilitate national policy implementation. As Fenwick (2015) has argued, presidents may even try to “avoid governors” from rival parties in the attempt to partner with more sympathetic mayors in order to increase the prospects for the implementation of national policy goals. Finally, as the global wave of democratization has ebbed along with the emergence of significant cases of democratic reversals, one can ask what this more recent trend of “democratic backsliding” means for subnational governments and governance (Bermeo 2016). Very little scholarship has focused on this issue, but one key question concerns whether subnational governments can persist as spaces for limited political pluralism even when hybrid or competitive forms of authoritarian rule emerge at the center. Allowing some degree of political autonomy for subnational governments may help authoritarian actors at the national level look less authoritarian, especially in subnational territories that are perceived as insignificant or unthreatening. At the same time, from Russia to Venezuela, the rise to power of authoritarian figures at the national level has tended to be fatal for the survival of opposition-governed subnational spaces. 3.2.3 Liberalization In addition to decentralization and democratization, economic liberalization and the conflict that has surrounded the adoption of market reforms offer a third window through which to assess intergovernmental conflicts and contestation. For a variety of reasons and with important consequences, ideological struggles over the role of the state in the economy that have long dominated national political life and electoral politics in so many countries have become increasingly territorialized. One of the curious aspects about economic liberalization is that it can create powerful grievances among subnational losers and winners alike. Elected officials in regions that cannot compete in the global marketplace, or that were disproportionately dependent on trade protection, or that do not export the kinds of commodities or industrial goods in demand externally, are likely to use their positions to oppose liberalization (Beramendi 2012). At the same time, regions that are well positioned to extract gains from international trade may come to feel that they do not wish to subsidize regions that cannot, leading to “revolt of the rich” dynamics. Neoliberal reforms have likely widened interregional inequality in many countries of the Global South, with growing divides between “have” and “have-not” territories. Statist models of development also had uneven territorial impacts as

Subnational political tensions  35 governments promoted industries in certain subnational regions, but today it is much more difficult for national governments to ignore subnational grievances due to the twin effects of the trends discussed above: decentralization and democratization. In some cases, as Gibson and Calvo (2000) argued, liberalizing governments were able to impose losses on industrialized jurisdictions that stood to lose from market reforms by favoring more peripheral jurisdictions, effectively playing subnational regions off against one another. In China, the decision to allow regional governments to retain more of the taxes they collect encouraged them to foment more attractive investment environments in an arrangement called “market-preserving federalism” (Montinola, Qian, and Weingast 1996). In some countries, the adoption of market reforms set in motion counter attempts by mayors and governors to institute various forms of subnational statism in reaction to national-level neoliberalism. Here we need to challenge the view that statism necessarily requires control of the central state since there are a variety of tools that subnational officials typically wield that can be used in the service of greater state control vis-à-vis the private sector, from property taxes to zoning regulations and the denial of land-use permits. In India, for example, communist party rule in the states of Kerala and West Bengal generated a distinctive model characterized by investments in public infrastructure, increases in planning capacity, and new types of participatory mechanisms (Heller 2001). In Latin America, scholars have documented the ability of intermediate-level governments (e.g., provinces and states) to resist neoliberalism by creating their own industrial policies (Montero 2002), negotiating less advantageous contracts with private contractors (Post 2014), and even re-instituting forms of subnational corporatism in the aftermath of national-level liberalization (Snyder 2001b). At the local level, the turn to the market encouraged progressive mayors to engage in forms of “municipal socialism” in the attempt to partially compensate for the retreat of the central state (Goldfrank and Schrank 2009). From the perspective of national neoliberals, profligate subnational officials engage in irresponsible patterns of spending that imperil the country’s macroeconomic stability. Nowhere are subnational political tensions more acute than when central governments are forced to engage in subnational bailouts. If subnational officials can try to defend more robust forms of state intervention in a neoliberal world, they can also do the opposite, seeking to preserve market-centered approaches when these come under attack at the national level. Not controlling the national government denies exponents of neoliberalism the ability to cut tariffs or devalue currencies, but they can still act on their preferences at the subnational level in a number of other ways. For example, they can contract out to private sector firms on infrastructure projects, favor a less universalistic and more targeted approach to social services, or seek to privatize electricity, water, sewage and other expenditures under their control. The early 21st century left turn in Latin America is a case in point, where the election of left-leaning parties at the national level led to various attempts to reverse neoliberalism and to return to more state-centered models of development. Subnational officials on the right often responded to this political development by seeking to preserve the more liberal approaches deemed to have succeeded in their jurisdictions in the past. Bolivia and Ecuador are two salient examples where mayors and governors in the most economically vibrant districts (Santa Cruz and Guayaquil, respectively) aggressively defended neoliberal approaches to governance that contrasted sharply with “21st first century socialism” at the national level (Eaton 2017). Taken together, the three governance trends of decentralization, democratization, and liberalization have substantially complicated intergovernmental relations in scores of countries. For

36  Handbook on subnational governments and governance good or for ill, gone are the days when national officials could easily discount the preferences, concerns, and demands of their subnational counterparts. Lamented by some and celebrated by others, the heightened political salience of subnational governments has taken a number of different forms variously reflected in each of the three trends discussed in this section. In the aftermath of decentralization, subnational officials have offered staunch resistance to efforts by the central government to claw back resources and authority. In competitive democracies, subnational districts may increasingly provide political shelter to national parties when they lose at the national level – districts that allow them to regroup for subsequent efforts to recapture the center down the line. With respect to liberalization, ongoing struggles over the role of the state in the economy are likely to produce more frequent situations of “policy regime juxtaposition” with rival development models in place at the national and subnational levels.

3.3

COALITIONAL DYNAMICS IN THE EXPRESSION OF SUBNATIONAL POLITICAL TENSIONS

Relative to the more centralized patterns of governance that were common in the past, intergovernmental relations between national and subnational governments are more conflictual now largely because subnational officials can act more independently of the center. For all the reasons discussed above, elected politicians at the intermediate and local levels of government have greater incentives to pursue their own policy preferences and enhanced authority and resources to do. Even as they have gained prerogatives and revenues and influence, subnational officials remain highly vulnerable in their battles with the center. Even in the most robust forms of decentralization, the playing field between national and subnational officials is by no means an even one; central governments enjoy tremendous advantages in their conflicts with subnational jurisdictions – even the most powerful ones. In part this is because of the sovereignty that central states enjoy vis-à-vis other states in the international system, which gives them prerogatives no substate region can claim. Exclusive control over tariffs, treaties, and currencies means that subnational officials will never be on an equal footing with their national counterparts. Furthermore, while the national chief executive is typically a single individual, subnational executives are numerous individuals and can be played off of one other by the center. Any elected mayor or governor may be significantly more powerful than their appointed predecessors, and yet at the same time occupy positions that are marked by vulnerability, insecurity, and isolation. What kinds of coalitions – horizontal and vertical – are subnational officials trying to build to overcome some of these challenges and to “punch above their weight?” Given the “David versus Goliath” quality of intergovernmental relations in many countries, a key question becomes how and whether individual subnational executives are able to act as a collectivity vis-à-vis the center to defend their prerogatives or to advance their shared concerns. The more that individual subnational governments can act in concert, the harder it will be for the center to merely try to repress their demands, and the more likely the center will be forced to offer some form of accommodation. But the obstacles facing the emergence of such coalitions are significant, including grievances and recriminations between subnational regions against one another that can be just as or more acute as those against the center itself. According to Juan Cruz Olmeda’s (2021) study of intergovernmental relations in Argentina, Brazil, and Mexico, two factors that help governors overcome these obstacles are partisan and

Subnational political tensions  37 structural similarities. Governors in different provinces that share membership in the same party, especially if that party is not the president’s, can more easily create coalitions. But even where governors represent different parties, coalition formation may be possible where they govern provinces with similar structural realities, ranging from similar kinds of economic activities (e.g., agricultural, industrial, or extractive economies) to similar levels of indebtedness. As the absolute number of subnational districts increases, the formation of horizontal coalitions likely becomes harder, which helps explain the center’s support for unit proliferation in cases ranging from Indonesia to Brazil. It is also important to note that, while coalitions may emerge and then evaporate in response to short-term political challenges, subnational officials have also built more permanent organizations (e.g., Mayors’ Leagues and Governors’ Associations) in the attempt to defend the collective interests of subnational governments in a non-partisan fashion (Falleti 2010). If coming together horizontally reflects a “strength in numbers” kind of strategy, individual subnational officials can also try to build vertical coalitions in their struggles with the center. Given that most countries – including even unitary ones – have more than one subnational level of government, vertical coalitions may form between intermediate and local level governments within the same province, state, department, or region. Governors who can enlist the support of the mayors who govern the municipalities that make up the larger district are likely to be able to exert greater leverage vis-à-vis the center. But these “subnational vertical coalitions” can be hard to defend when, as argued above, national governments simultaneously seek to circumvent intermediate governments and reach down to strategically partner with municipal governments (Dickovick 2007; Fenwick 2015). Even in the absence of these attempts, Gibson (2005, 131) describes a common “authoritarian province/plural cities” dynamic that can complicate coalition formation; governors responding to more conservative, rural interests may fail to find common cause with the more progressive leaders preferred by urban electorates in the province’s cities. In other cases, ideology may facilitate these coalitions, as in Ecuador where the conservative mayor of Guayaquil was able to partner with the conservative governor of Guayas in their shared struggle against a leftist national government (Eaton 2017). Vertical coalitions can also transcend national borders, as when subnational officials seek out partnerships with sympathetic allies external to the country in question. Cooperative relationships between subnational and supranational actors, which may skirt the national-level actors that lie between them in hierarchies of governance, have been most extensively studied in the European case. In the context of the European Union (EU), a robust literature has emerged to examine how various mechanisms at the supranational level (e.g., the Committee of the Regions, structural funds, representation in the Council of Ministers) have redounded to the benefit of subnational regions (Hooghe and Marks 1996; Tatham 2016). While it would be difficult to claim that subnational governments in other world regions outside Europe have derived similar benefits from supranational institutions (given the absence of robust EU-like institutions in the Global South), it may be possible for them to pursue other external strategies in the pursuit of vertical coalitions (Eaton and Schakel 2022). Around the world, mayors and governors are increasingly pursuing their own “paradiplomatic” efforts in ways that may clash with the preferences of national officials (Tavares 2016; Fantoni and Avellaneda 2022). Just considering the Andean subregion, one could argue that a wide range of external actors may be appealing to subnational officials when they come into conflict with their respective national governments. In Colombia, the mayor of Bogota (Gustavo Petro) sought the help of the Inter-American Commission of Human Rights to resist his removal of office over ideological

38  Handbook on subnational governments and governance disagreements with the national government (Eaton 2022). In Peru, regional officials partnered with environmental non-governmental organizations in the Global North in the attempt to engage in zoning processes that would limit mining by transnational corporations (Gustafsson 2017). In Bolivia, conservative governors in the eastern departments attempted to leverage the support of the US ambassador in their movement against a leftist national government (Eaton 2017). Finally, even as individual subnational executives may try to reach beyond the districts they govern in order to build horizontal and vertical coalitions with actors outside these jurisdictions, it is also the case that they need to engage in coalition-building at home. When subnational chief executives like mayors and governors are embattled with national chief executives, the latter can try to take advantage of divisions within the districts that governors govern. Again, because these conflicts often have such an asymmetric quality, it is especially important for subnational executives to build and cultivate internal coalitions. Even where decentralization has replicated “hyper-presidential” forms of rule in which subnational chief executives dominate subnational representative bodies, mayors and governors whose parties enjoy majorities in municipal councils and provincial legislatures will be harder for the center to topple. Just as critically, subnational officials need to build societal coalitions with important civil society groups and private sector actors to enhance the prospects of success in their conflicts with national governments.

3.4 CONCLUSION If politics is fundamentally about who gets what, where, why, and when, then one can argue that subnational governments have become increasingly important political actors. By extension, studying governance by only examining what happens at the national level has become harder and harder to defend as a scholarly practice. The growing salience of subnational governments and governance is by no means uniform across national contexts; as the chapters in parts II through V of this handbook demonstrate, the relevance of subnational governments varies widely not just across world regions but within them as well. Nevertheless, truly broad trends like decentralization, democratization, and liberalization hold the clues for understanding why, on balance, it has become more difficult for national officials to always “overawe” their subnational counterparts. Rather than assume that subnational and national officials will work together to collectively improve governance, much of the political science literature leads us to expect conflict, competition, and contestation along the vertical axis of government. Now that decentralization has elevated the ability of subnational governments to act much more independently than was the case in the past, they have become key players with their own preferences vis-à-vis national level struggles over democratization and liberalization. At the same time, given the asymmetries that continue to characterize their interactions with more powerful national governments, the officials who now govern individual subnational governments have embarked on varied attempts to strengthen their positions through the construction of coalitions – horizontal partnerships with other equally vulnerable subnational governments but also vertical alliances with external actors who can bring to bear greater resources and visibility. By emphasizing intergovernmental conflict, competition, and contestation, this chapter strikes a perhaps more somber and pessimistic note than other chapters in part I, which instead emphasize important dynamics of collaboration, coproduction, and innovation. And yet “sub-

Subnational political tensions  39 national political tensions” are very much in the eye of the beholder. On the one hand, national governments may feel nostalgic for the time when they did not have to encounter subnational officials as yet another stakeholder to consider, indulge, or accommodate. The emergence and empowerment of subnational governments that are more able to act autonomously from the center has indeed complicated governance and generated new and persistent forms of political tension in political systems around the world. But it is also possible to see these developments as fundamentally positive, beneficial, and likely to eventually and ultimately produce better governance outcomes. In this sense, subnational political tensions are only the natural result of a broad shift from overly centralized forms of rule to patterns of governance that diffuse rather than concentrate power.

REFERENCES Abrucio, Fernando. 1998. Os Barões da Federacão. São Paulo: Universidade de São Paulo. Albertus, Michael. 2015. Autocracy and Redistribution: The Politics of Land Reform. New York: Cambridge University Press. Beramendi, Pablo. 2012. The Political Geography of Inequality: Regions and Redistribution. New York: Cambridge University Press. Bermeo, Nancy. 2016. “On Democratic Backsliding,” Journal of Democracy 27 (1): 5–19. Dickovick, Tyler. 2007. “Municipalization as Central Government Strategy: Central-Regional-Local Politics in Peru, Brazil, and South Africa,” Publius 37 (1): 1–25. Dickovick, Tyler. 2011. Decentralization and Recentralization in the Developing World: Comparative Studies from Africa and Latin America. University Park: Penn State University Press. Dickovick, Tyler and Kent Eaton. 2013. “Latin America’s Resurgent Centre: National Government Strategies after Decentralisation,” Journal of Development Studies 49 (11): 1453–1466. Eaton, Kent. 2004. Politics Beyond the Capital: Designing Subnational Institutions in South America. Stanford: Stanford University Press. Eaton, Kent. 2017. Territory and Ideology in Latin America: Policy Conflicts between National and Subnational Governments. Oxford: Oxford University Press. Eaton, Kent. 2022. “Multilevel Governance and the External Strategies of Subnational Governments in Latin America,” Regional & Federal Studies 32 (3): 353–373. Eaton, Kent and Arjan Schakel. 2022. “Interconnected Multilevel Governance: Regional Governments in Europe and Beyond,” Regional & Federal Studies 32 (3): 255–275. Eaton, Kent, Kai Kaiser and Paul Smoke. 2010. The Political Economy of Decentralization Reforms: Implications for Aid Effectiveness. Washington, DC: The World Bank. Faguet, Jean Paul. 2013. Decentralization and Popular Democracy: Governance from Below in Bolivia. Ann Arbor: University of Michigan Press. Falleti, Tulia. 2010. Decentralization and Subnational Politics in Latin America. New York: Cambridge University Press. Falleti, Tulia. 2011. “Varieties of Authoritarianism: The Organization of the Military State and Its Effect on Federalism in Argentina and Brazil,” Studies in Comparative International Development 46 (2): 137–162. Fantoni, Marylis and Claudia N. Avellaneda. 2022. “Explaining Paradiplomacy: Do Local Pro-​ International Structures and Political Support Matter?” Global Public Policy and Governance 2: 353–375. Fenwick, Tracy. 2015. Avoiding Governors: Federalism, Democracy, and Poverty Alleviation. Notre Dame: University of Notre Dame Press. Freidenberg, Flavia and Julieta Suárez-Cao, eds. 2014. Territorio y Poder: Nuevos Actores y Competencia Política en los Sistemas de Partidos Multinivel en América Latina. Salamanca: Ediciones Universidad de Salamanca. Gervasoni, Carlos. 2018. Hybrid Regimes within Democracies: Fiscal Federalism and Subnational Rentier States. New York: Cambridge University Press.

40  Handbook on subnational governments and governance Gibson, Edward. 2005. “Boundary Control: Subnational Authoritarianism in Democratic Countries,” World Politics 58 (1): 101–132. Gibson, Edward and Ernesto Calvo. 2000. “Federalism and Low-maintenance Constituencies: Territorial Dimensions of Economic Reform in Argentina,” Studies in Comparative International Development 35: 32–55. Giraudy, Agustina. 2015. Democrats and Autocrats: Pathways of Subnational Undemocratic Regime Continuity within Democratic Countries. Oxford: Oxford University Press. Giraudy, Agustina and Juan Pablo Luna. 2017. “Unpacking the State’s Uneven Territorial Reach: Evidence from Latin America,” in Miguel Centeno, Atul Kohli, and Deborah Yashar, eds., States in the Developing World. New York: Cambridge University Press. Giraudy, Agustina, Eduardo Moncada and Richard Snyder, eds. 2019. Inside Countries: Subnational Research in Comparative Politics. New York: Cambridge University Press. Goldfrank, Benjamin and Andrew Schrank. 2009. “Municipal Neoliberalism and Municipal Socialism: Urban Political Economy in Latin America,” International Journal of Urban and Regional Research 33 (2): 443–462. Gustafsson, Maria-Therese. 2017. “The Struggles Surrounding Ecological and Economic Zoning in Peru,” Third World Quarterly 38 (5): 1146–1163. Heller, Patrick. 2001. “Moving the State: Democratic Decentralization in Kerala, South Africa, and Porto Alegre,” Politics & Society 29 (1): 131–163. Hooghe, Liesbet and Gary Marks. 1996. “Europe with the Regions: Channels of Regional Representation in the European Union,” Publius 26(1): 73–91. Hooghe, Liesbet and Gary Marks. 2016. Community, Scale, and Regional Governance: A Postfunctionalist Theory of Governance, Volume II. Oxford: Oxford University Press. Hutchcroft, Paul. 2001. “Centralization and Decentralization in Administration and Politics: Assessing Territorial Dimensions of Authority and Power,” Governance 14 (1): 23–53. Linz, Juan and Arturo Valenzuela, eds. 1994. The Failure of Presidential Democracy: Comparative Perspectives, Volume I. Baltimore: Johns Hopkins University Press. Luna, Juan Pablo and Hillel Soifer. 2017. “Capturing Subnational Variation in State Capacity: A Survey-based Approach,” American Behavioral Scientist 61 (8): 887–907. Malesky, Edmund. 2008. “Straight Ahead on Red: How Foreign Direct Investment Empowers Subnational Leaders,” Journal of Politics 70 (1): 97–119. Montero, Alfred. 2002. Shifting States in Global Markets: Subnational Industrial Policy in Contemporary Brazil and Spain. University Park: Penn State University Press. Montinola, Gabriela, Yingyi Qian, and Barry Weingast. 1996. “Federalism, Chinese Style: The Political Basis for Economic Success,” World Politics 48 (1): 50–81. Musgrave, Robert. 1959. The Theory of Public Finance. New York: McGraw Hill. Niedzwiecki, Sara. 2018. Uneven Social Policies: The Politics of Subnational Variation in Latin America. New York: Cambridge University Press. Niedzwiecki, Sara and Jennifer Pribble. 2023. “Social Policy and State Capacity in Latin America: A Subnational Perspective,” Oxford Handbook on Latin American Social Policy. Oxford: Oxford University Press. Oates, Wallace. 1972. Fiscal Federalism. New York: Harcourt Brace. Olmeda, Juan Cruz. 2021. La Unión Hace la Fuerza? La Política de la Acción Colectiva de los Gobernadores en Argentina, Brasil, y México. Mexico City: El Colegio de México. O’Neill, Kathleen. 2005. Decentralizing the State: Elections, Parties, and Local Power in the Andes. New York: Cambridge University Press. Post, Alison. 2014. Foreign and Domestic Investment in Argentina: The Politics of Privatized Infrastructure. New York: Cambridge University Press. Resnick, Danielle. 2021. “The Politics of Urban Governance in Africa,” Regional & Federal Studies 31 (1): 139–161. Rodden, Jonathan. 2005. Hamilton’s Paradox: The Promise and Peril of Fiscal Federalism. New York: Cambridge University Press. Rondinelli, Dennis. 1981. “Government Decentralization in Comparative Perspective,” International Review of Administrative Sciences 47 (2): 133–145.

Subnational political tensions  41 Shair-Rosenfield, Sarah. 2016. “The Causes and Effects of the Local Government Code in the Philippines: Locked in a Status Quo of Weakly Decentralized Authority?” Journal of Southeast Asian Economies 33 (2): 157–171. Snyder, Richard. 2001a. “Scaling Down: The Subnational Comparative Method,” Studies in Comparative International Development 36 (1): 93–110. Snyder, Richard. 2001b. Politics after Neoliberalism: Reregulation in Mexico. New York: Cambridge University Press. Soifer, Hillel. 2015. State Building in Latin America. New York: Cambridge University Press. Souza, Celina. 1997. Constitutional Engineering in Brazil. New York: St. Martin’s Press. Tatham, Michael. 2016. With, Without, or Against the State? How European Regions Play the Brussels Game. Oxford: Oxford University Press. Tavares, Rodrigo. 2016. Paradiplomacy: Cities and States as Global Players. Oxford: Oxford University Press. Wibbels, Erik. 2005. Federalism and the Market: Intergovernmental Conflict and Economic Reform in the Developing World. New York: Cambridge University Press.

4. Provision and production of public services by local governments Milagros Álvarez-Verdugo and Germà Bel

4.1 INTRODUCTION The distinction between the provision and production of public services (Ostrom, Tiebout and Warren, 1961) lies at the heart of the practice of, and scholarly research on, the reform of local public services delivery. In fact, contracting out is based on this same distinction between provision and production and while this question has been naturally integrated into the study of local privatization, much confusion remains in how it should be interpreted in analyses of intermunicipal cooperation. For instance, in the United States, intermunicipal cooperation is most often approached as intermunicipal contracting, with the provision mode staying the same, and the only change being in the entity that produces the service, as occurs with ‘privatization’ (it is worth noting that in the US-based research ‘service delivery’ is often used, rather than ‘production of service’). In most European countries, however, intermunicipal cooperation means common provision with other municipalities or transferring provision to other local (but supra-municipal) tiers of government. In this last case, decisions regarding the production mode (i.e., who delivers the service) are transferred to the new governing body. In some countries, cooperation implies that production remains under government control; in others, the bodies that govern provision can decide whether production is kept under governmental control or contracted out to private firms. This chapter aims to clarify the distinction between provision and production with an application to the domain of intermunicipal cooperation. Cross-country differences in the way provision and production are combined are analyzed, and for this comparative perspective a special emphasis is placed on the cases of the United States and the European countries. Here, particular attention is paid to legal origins and administrative traditions (Glaeser and Shleifer, 2002; La Porta, López-de-Silanes and Shleifer, 2008) as a potential factor to explain these differences. Finally, we discuss the challenges posed by different combinations of production forms under intermunicipal cooperation based on the empirical analysis of its effects.

4.2

PROVISION AND PRODUCTION OF PUBLIC SERVICES

It is quite common for the terms ‘provision’ and ‘production’ to be used indistinctly when referring to the delivery of public services. This occurs in both professional analyses and scholarly discussions, with very few exceptions (a fine distinction can be found, for example, in Holzer and Fry, 2011, pp. 141–144). However, the distinction between provision and production lies at the very heart of government reforms – at all levels of jurisdiction – of the 42

Provision and production of public services  43 delivery of public services that have been – and continue to be – widely implemented in recent decades, including the privatization of local public services and intermunicipal cooperation. The distinction between the provision and production of public services was clearly made by Ostrom, Tiebout and Warren (1961, p. 834): “The production of goods and services needs to be distinguished from their provision at public expense. Government provision need not involve public production – indeed, at some stage in the sequence from raw materials to finished products virtually every public good, not already a natural resource, is of private origin. So, a public agency by contractual arrangements with private firms – or with other public agencies – can provide the local community with public services without going into the business of producing them itself.” Stiglitz (2000) further elaborates on this distinction by adding greater precision to these concepts and their applications, which can be understood as follows. Provision: The key question when referring to ‘provision’ is who exactly is responsible for the existence and availability of a good or service. In a market economy, private firms are responsible for providing pure private products or services, such as office supplies or sport pants (market provision). Governments, however, are responsible for providing pure public goods (such as defense), and those goods or services that are collectively deemed as being preferential services – that is, health or education – or services that often have the attributes of quasi-markets (Boyne, 1998; Lowery, 1998), such as urban water distribution or solid waste management. In this case, public provision is the general rule,1 as governments assume responsibility for their existence and availability. Production: The key question when referring to ‘production’ is who exactly is responsible for organizing the production factors, so that a good or service is produced and delivered. In a market economy, private firms are usually responsible for producing private goods and services (consistent, that is, with their being under private provision), although it was not entirely exceptional – before the wave of privatizations in the last decades of the past century – for governments to be involved in the production of private goods, such as steel, cars or commercial flights. Governments, however, have enjoyed a primary role in the production of services under public provision since the last decades of the 19th century (Bel, 2020). Nonetheless, it was relatively frequent – particularly at the subnational level – to find governments that, while being the providers of the public service, opted to transfer the task of producing and managing the delivery of such services to private firms. In the last decades of the 20th century, privatization of the production of public services expanded. To avoid confusion in the use of these concepts, mention should be made of the lack of a unidirectional relationship between public provision, public production, and public funding. The key question in relation to ‘funding’ is who pays the producer for the good or service that is delivered.2 Publicly provided services can be paid from the budget (i.e., by the taxpayers), by the users or by a combination of both taxpayer and user payments. Urban water distribution is a good example of user funding, regardless of whether the service is produced by a government-owned unit or firm or contracted out to a private firm. In contrast, residential solid waste collection is a good example of a government-provided service that is frequently funded from the public budget, regardless of whether the collection is made by a government unit/firm or contracted out to a private firm. Therefore, it is clear that there is no univocal relationship between the public and private dimensions of provision and production with respect to funding. This established, it should be mentioned that there is evidence suggesting that the privatization of public services can be used to increase the fraction of the cost of the service

44  Handbook on subnational governments and governance paid for by users and to reduce budgetary funding, as reported by Bel and Miralles (2010) in the case of solid waste collection and by Porcher (2017) in the case of water.

4.3

PROVISION AND THE PRIVATIZATION OF PRODUCTION OF PUBLIC SERVICES

Public provision and production of services expanded enormously after the so-called Progressive Era, that is, the years between 1896 and 1915, which followed the Gilded Age in the United States (Lough, 2016). A similar expansion was experienced later – with varying degrees of intensity in most European countries. This shift, together with the broad consensus in favor of government intervention in the economy that followed the Great Depression of the 1930s, paved the way for the dominance of government provision and production of public services for most of the 20th century. In the 1960s, the practice of contracting out by governments began to increase (Heyman, 1961), but it was not until the 1970s that government production of services was to be subjected to intense criticism. The strongest critique was based on both theoretical arguments and on grounds of empirical disappointment with the performance of government interventions, following analyses undertaken by scholars from the Chicago School (Stigler, 1971; Posner, 1974, 1975; Peltzman, 1976). In these years, legal regulation was also gaining influence as a replacement for public ownership (Bortolotti and Perotti, 2007). In the last decades of the 20th and at the beginning of the 21st centuries, many subnational governments around the world engaged in the privatization of public services, most frequently by means of contracting out service delivery. A huge body of literature (mostly related to North America and Western Europe) was produced both on the factors that triggered public service privatization and on its main economic effects. Meta-reviews (Bel and Fageda, 2007, 2017) and meta-regression analyses (Bel and Fageda, 2009) suggest budgetary constraints and financial restrictions were important drivers, together with expectations of enhanced efficiency and cost savings. Here, a distinction should be drawn between (1) expected effects of a more efficient private management driven by competition, and (2) expected effects of private firms being able to improve the scale of operations by aggregating the volume of service in close municipalities and, thus, benefitting from scale economies (Bel and Miralles, 2003). Political and ideological objectives, while sometimes present in those most heavily studied regions, were less relevant than the aforementioned factors. Evidence on the economic impact of the privatization of public services is abundant, and meta-reviews – both literary and statistical – are available (e.g., Bel and Warner, 2008; Bel, Fageda and Warner, 2010; Overman, 2016; Petersen, Hjelmar and Vrangbæk, 2018; Andersson, Jordahl and Josephson, 2019). Generally, and contrary to expectations, cost savings have not been systematic. Problems generated by the high transaction costs of privatization (Brown and Potoski, 2003a, 2003b) have tended to undermine cost savings. Furthermore, the lack of competition for contracts (Bel and Costas, 2006; Hefetz and Warner, 2012; Hefetz, Warner and Vigoda-Gadot, 2012) may have been an obstacle to translate potential increases in technical efficiency with private firms (as compared to previous government delivery) into actual cost savings for governments. What is central to our discussion here is that the privatization of public services, while shifting production to private actors, did not usually change the nature of the public provision

Provision and production of public services  45 of the public services concerned (with the rare exception of a government abandoning the provision of a service altogether). Governments have remained responsible for the existence and availability of public services, and – when contracting out to private firms – contracts and other regulatory tools establish standards for volumes, quality and prices of services, among other outcomes. While these may change over time, especially when a new contract is drawn up, privatization does not generally affect provision and only production is shifted to the private sector.

4.4

PROVISION AND PRODUCTION WITH ALTERNATIVE REFORMS OF PUBLIC SERVICE DELIVERY

Privatization of public services management was a hegemonic tool for local government reform in the last decades of the 20th and the early 21st centuries. However, increasing disappointment with the outcomes of privatization with respect to a priori expectations triggered alternative public service delivery reforms (Bel and Warner, 2015, 2016), with which subnational governments sought to deal with the unsatisfactory results of traditional bureaucratic in-house delivery. One such reform was the corporatization of public delivery – that is, shifting delivery from in-house to external management, while keeping it under government control (Voorn, van Genugten and van Thiel, 2017; van Genugten, van Thiel and Voorn, 2020; Andrews, Clifton and Ferry, 2022). As production remains under close governmental control, corporatization has been the least transformative type of reform in this public-versus-private dilemma. At the other end of the spectrum, the remunicipalization of public services has been the most transformative, as it implies the shift back from the private to public management of service delivery (see Hall, Lobina and Terhorst, 2013; Albalate et al., 2021; Cumbers and Paul, 2022), although it cannot be claimed that it has overtaken privatization as the preferred reform tool (Clifton et al., 2021; Voorn, van Genugten and van Thiel, 2017). Having highlighted the differences between these reform tools vis-à-vis the public/private dilemma, it is worth adding that none of them altered the fact the local government authority remained responsible for the service provision before and after the reform. That is, the provision of the service was unaffected; only the production (management) of the service was affected. Another highly relevant alternative to the privatization of public service delivery is intermunicipal cooperation. Cooperation between municipalities in the delivery of local public services is not new in practice, nor are the theoretical propositions of cooperation as an instrument for addressing the disadvantages posed by sub-optimal municipal size for service delivery, as suggested by Ostrom, Tiebout and Warren (1961). Further theoretical analyses (e.g., Agranoff and McGuire, 2003) have emphasized cooperation as a tool to exploit economies of scale, achieve better quality and improve service coordination across fragmented local governments. As well as the disappointment with the outcomes of privatization, another factor has been key in explaining the increase in intermunicipal cooperation. Indeed, the amalgamation of municipalities was expected to improve the structural cost conditions of service delivery. However, increasingly available empirical evidence fails to show any significant cost reductions (Andrews, 2015; Tavares, 2018; Reingewertz and Serritzlew, 2019), with the exception of purely administrative services. Moreover, it has been found to have significant side effects on governance and democratic participation. However, intermunicipal cooperation has been

46  Handbook on subnational governments and governance on the rise in the last two decades (Bel and Warner, 2015), and the type of cooperative arrangements has increased as well (Teles and Swianiewicz, 2018). Likewise, there has been an increase in scholarly interest in analyzing both its drivers (e.g., Bel and Warner, 2016) and its effects (Silvestre, Marques and Gomes, 2018; Bel and Sebő, 2021). Robust multivariate empirical analyses of the economic effects of intermunicipal cooperation are relatively new, the first published articles appearing less than twenty years ago (Bel and Costas, 2006; Sørensen, 2007). These early studies focused heavily on waste collection in European countries. As the empirical literature has developed, many more sectors have come under analysis and now include urban water (Szmigiel-Rawska et al., 2020; Zafra-Gómez et al., 2020), wastewater (Blaeschke and Haug, 2018), health services (Silvestre et al., 2020; Arntsen et al., 2021), administrative services (Elston and Dixon, 2020); fire services (Blåka, 2017a; Bel and Belerdas-Castro, 2022), urban public transport (Campos-Alba et al., 2020), police (Zeemering, 2019), housing policies (Silvestre et al., 2019; Elston and Bel, 2021) and local development (Banaszewska et al., 2022). Similarly, albeit exploiting less-complex models, other studies have provided analyses of a range of different sectors (e.g., Allers and de Greef, 2018; Aldag, Warner and Bel, 2020), and countries outside Europe (e.g., Silvestre et al., 2019, 2020; Baba and Asami, 2020; Aldag, Warner and Bel, 2020; Muraoka and Avellaneda, 2021). The abundant evidence accumulated on the effects of intermunicipal cooperation present divergent results regarding cost savings. In the meta-regression conducted by Bel and Sebő (2021), the size of the municipalities that opt for cooperation appears to be relevant: the likelihood of obtaining cost savings tends to increase if the municipalities involved are small. Likewise, governance arrangements that reduce the multiple principal problem (see Voorn, van Genugten and van Thiel, 2019) increase the likelihood of obtaining cost savings. Much less is known, however, about the relationship between transaction costs and cost savings. Cooperation involves significant coordination and administration costs, including bargaining among cooperating parties, and monitoring compliance and outcomes, among others. All these activities involve time and resources, which might counterbalance potential cost savings. This is an issue that requires further research. Finally, there is a characteristic of intermunicipal cooperation that is of particular interest in any analysis of provision and production, and of the potential effects of reform. More specifically, while contracting out, corporatization and remunicipalization do not affect provision (only production management is affected), intermunicipal cooperation can result in changes in provision, as responsibility for the given service can be transferred between entities. This issue merits a more in-depth analysis, which is what the next section seeks to provide.

4.5

FORMS OF INTERMUNICIPAL COOPERATION AND CHANGES IN PROVISION

Intermunicipal cooperation in service delivery takes a diversity of forms, in which two key dimensions intersect: the intensity of a municipality’s collaboration and the strategic character of that activity (Agranoff and McGuire, 2003; McGuire and Agranoff, 2011). Another key characteristic of cooperation is the principle of voluntariness, that is, municipalities must enjoy autonomy with respect to their decision to enter or exit a collaborative agreement (Feiock and Scholz, 2010).

Provision and production of public services  47 The most flexible form of shared delivery is that of informal cooperation, when two or more municipalities cooperate in the delivery of a service by means of informal agreements, which are neither contractual nor institutionalized. Informal cooperation is frequent in the United States (Feiock, 2009), particularly in services such as roads or policing (Bel and Warner, 2015), but much less in other institutional environments, such as the countries of Europe (Hulst and van Montfort, 2007; Warner, 2011). Formal cooperation can be implemented by means of contractual agreement or with institutionalized bodies or organizations. Contractual collaborative agreements – often referred to as interlocal contracting – include “any contract or agreement that transfers the full responsibility for the production of the service to another entity” (Holzer and Fry, 2011, p. 73), that is, a local government – the service provider – contracting with another local government – the host municipality – for the delivery of the service. Delivery outcomes are agreed in exchange of compensation for costs incurred. This is the most frequent form of cooperation in the United States (Warner and Hebdon, 2001; Marvel and Marvel, 2007; Holzer and Fry, 2011), as well as being used in many other countries, although to a lesser degree (e.g., Germany, Norway, the Netherlands, the United Kingdom, etc.). Thus, for example, Gradus et al. (2014) report that only 4% of Dutch municipalities contract solid waste collection out to neighboring municipalities. Formal cooperation by means of institutionalized bodies or organizations is a more complex form as regards governance, but it is more frequent in Europe than in the United States. In Europe, institutionalized cooperation can take the form of joint corporations or administrative organizations in which the different municipalities involved share ownership and delivery. A detailed analysis of the different types of corporations, agencies, associations, unions of municipalities in various European countries, all of which are characterized by the joint governance of the municipalities involved in the cooperation, can be found in Bel et al. (2023). A somewhat different form of governance exists when cooperation is implemented by higher tiers of local governments, including the comarcas in Spain, communautés de communes in France and unione di comuni in Italy. In such cases, the service is delegated by the municipalities to the government at a higher tier, who is entitled to make choices regarding service delivery in the municipalities included in the service area. The implications for service provision associated with cooperative agreements and institutions differ. In the case of informal cooperation and interlocal contracting, while production of the service is shared with other entities, provision remains entirely in the hands of each municipality involved in the collaboration. However, the situation changes with institutionalized cooperation. Joint governance of shared delivery implies some degree of shifting provision (that is, decisions regarding service outcomes and production choices) from the participating municipalities to the joint boards. Even more acute is the shift of provision in the case of delegation to higher tiers of local government, as the latter take responsibility for service outcomes and production choices (even if the municipalities retain the right to exit the collaboration). Shifting service provision from municipalities to other entities has implications for the choice of production form. On the one hand, informal cooperation and interlocal contracting are almost always associated with the public production of the service. On the other, the governing bodies of joint delivery entities or of higher tiers of local government can make their own decisions as to whether to deliver the service by public means (e.g., an entity’s own staff or a public corporation) or to contract out delivery to private firms. This poses an interesting

48  Handbook on subnational governments and governance conundrum in the empirical analysis of the effects of cooperation, which we analyze in the following section.

4.6

PRIVATE PRODUCTION UNDER COOPERATIVE PROVISION, AND THE EMPIRICAL ANALYSIS OF THE EFFECTS OF COOPERATION

The concurrence of cooperative delivery and private production is rare in the United States, because collaborations are organized overall by means of interlocal contracts and informal agreements, and such agreements typically use public production. The situation differs in the countries of Europe, where marked differences can also be found across the region. A useful tool for describing and understanding these differences is their respective administrative and institutional traditions based on their legal origins. Glaeser and Shleifer (2002) distinguish between the English legal origin (Common Law) and the French (Civil Law). La Porta, López-de-Silanes and Shleifer (2008) further identify two legal origins that have evolved from the Civil Law tradition: the German legal origin (by way of decentralization) and the Scandinavian (by way of communitarianism). Adopting such an approach, and based on information contained in Bel et al. (2023) and additional sources,3 the following situations can be observed in Europe: ● In Western and Southern Continental Europe, where the French legal origin and administrative tradition is most systematically influential, private production is frequent under cooperative provision. This is the situation in countries such as Spain, France, Italy, and Portugal. For example, Bel, Fageda and Mur (2014) report that in the Spanish region of Aragon private production with cooperative provision was used in 65% of municipalities, while 35% of the municipalities under cooperative provision were served by public units/ firms. In the Netherlands and in Belgium, two countries of French legal origin, contracting to private firms under cooperation is, interestingly, either forbidden or subject to very restrictive conditions. ● Most countries in Central Europe are of German legal origin – not only Germany and Austria, but also most of the former eastern communist countries (with the exceptions of Romania and Lithuania). In these countries (including Poland, the Czech Republic, Slovakia, etc.), private production can be used in collaborative agreements, particularly in those that do not involve interlocal contracting. We are unaware of reports concerning the frequency of private production with cooperative provision, but such practices seem to be less frequent than in countries of French legal origin, partly because of legal restrictions (e.g., in Hungary, Croatia, Bulgaria, etc.). ● In Scandinavian countries, the use of cooperation for the provision of services is quite frequent (above all in Norway and Sweden), while contracting out delivery to private firms under cooperation is not forbidden but is very uncommon. ● There are no countries of English legal origin in Continental Europe. In the United Kingdom, cooperation is less frequent than in most continental countries, and contracting out delivery to private firms under collaborative agreements while feasible is uncommon. In Ireland, services are highly centralized and contracting out to private firms is frequent.

Provision and production of public services  49 Cooperation is uncommon, and contracting out to private firms under cooperation is very rare. These points suggest some sort of association between legal origins (which have an impact on the administrative traditions) and the level of coexistence of cooperative provision with private production. In the Civil Law (French legal system) mingling of private and public actors is more frequent. This is consistent, for instance, with the much higher private participation in urban water management (Bel, 2020). However, Rosell and Saz-Carranza (2020) found that countries of German and Scandinavian legal origins had significantly lower scores favoriting public-private partnerships. These related findings are consistent with the higher compatibility of cooperative provision and private production in countries of French legal origin; and lower compatibility in countries of German and particularly Scandinavian legal origin. Countries of Common Law (English Legal origin) are prone to use private delivery for public services but tend to have little private production under cooperative provision. A possible explanation is the more rigid separation between public and private production forms in Anglo-Saxon legal systems, which are more restrictive for hybrid organizational forms. This is consistent with very little presence of mixed public-private firms – government and private actors sharing ownership in a firm (Warner and Bel, 2008). Certainly, further research on the relationship between legal origins/administrative traditions and the combination of cooperative provision with private production might yield interesting insights. The co-existence of cooperative provision with the private production of service delivery poses various challenges to empirical studies of the effects of cooperation. Two are particularly relevant. First, and with respect to costs, intermunicipal cooperation is assumed to enable small municipalities to exploit scale economies; however, this can also be achieved by means of a private firm delivering the service in a set of small municipalities that are geographically close to each other. Therefore, when comparing the costs of cooperative provision with those of stand-alone municipal provision, considering the type of production in a municipality is advisable to control for the potential effects of private delivery on costs. Yet, such a consideration is usually not made in empirical studies of cooperation and costs, although several exceptions exist. In the first multivariate study to identify the cost effects of cooperation, namely Bel and Costas (2006), cooperative status was included in the modelling to better understand the cost effects of privatization. Subsequently, Sørensen (2007) took into account the awarding of contracts by means of tendering (the effects were found to be insignificant and not explicitly reported), although this might constitute a deficient control if public firms can be awarded contracts, as is common. Only a few articles have since controlled for private production when evaluating the effect of cooperation on costs (e.g., Bel and Mur, 2009; Dijkgraaf and Gradus, 2013; Bel, Fageda and Mur, 2014; Soukopová and Sládeček. 2018; Bel and Belerdas-Castro, 2022). The easiest way to do this is to include a control for private production when modelling the equation to be estimated and in which costs are the dependent variable. A problem subsists if there is a relationship (be it negative or positive) between the choice of cooperative provision and private production. To address this, Bel, Fageda and Mur (2014) conduct a two-stage least squares estimation and a further decomposition of combinations of forms of provision and production. The second challenge concerns evaluating the effects of intermunicipal cooperation on quality.4 Studies directly addressing quality are much less frequent than those concerned with the effects on costs, and have been conducted mainly for Scandinavian countries (e.g., Blåka,

50  Handbook on subnational governments and governance 2017b; Arntsen, Torjesen and Karlsen, 2021; Blåka, Jacobsen and Morken, 2021). An established theoretical insight into the links between privatization and quality is that private firms have incentives to reduce quality in order to increase their profits (Hart, Shleifer and Vishny, 1997; Levin and Tadelis, 2010). If we consider that collaboration is based on trust, governments tend to trust other governments more than they do private agents because the former are assumed to have similar goals (Brown, 2008). Therefore, intermunicipal cooperation should deliver more quality than privatization. However, differences can be assumed between interlocal contracting (in which the source of provision does not change) and joint governance and delegation (in which provision is shifted to other entities). For this reason, in the case of interlocal contracting, the host municipality may have incentives to reduce costs by delivering less quality to the served municipality, an incentive that does not appear to be relevant in the case of joint governance or delegation. Hence, there is a need to consider not only potential privatization under cooperative provision, but also the type of cooperative arrangements when assessing the effects of intermunicipal cooperation on quality. Overlooking potential private production under cooperative provision is likely a very minor issue when studying Scandinavian and English-speaking countries, because of the scarcity of its occurrence. Indeed, the same holds for the Netherlands and Belgium. But this issue poses more serious challenges when analyzing countries in central Europe of German legal origin and, more particularly, when dealing with the countries of French legal origin in Southwestern Europe. Nonetheless, the question is typically overlooked, even in the most recent, technically robust empirical papers published on the effects of intermunicipal cooperation in Central and Southern European countries (e.g., Ferraresi, Migali and Rizzo, 2018, for Italy; Banaszewska et al., 2022, for Poland; Binet, Lebrun and Leprince, 2023, and Tricaud, 2022, for France). Further empirical analyses of the effects of intermunicipal cooperation will benefit from incorporating these relatively unexplored dimensions.

4.7 CONCLUSION The distinction between the provision and production of public services lies at the very heart of the privatization of service delivery, while responsibility for these services is retained by the municipal government. In the case of intermunicipal cooperation, however, the situation may be different. While interlocal contracting does not change the position of the cooperating municipalities regarding service provision, cooperation by means of joint governance units or by delegation to higher tier local governments shifts the responsibility for provision to those entities that govern the cooperation. Furthermore, cooperative provision can be compatible with contracting delivery out to private firms. This is not often the case when cooperation is implemented via interlocal contracting, but it is more frequent when entities other than the cooperating municipalities are in charge of the governance of cooperation. In such instances, in the Central European countries of German legal origin and, above all, in the countries of Southwestern Europe of French legal origin, intermunicipal cooperation and private production are frequently combined. The multiple dimensions in the relationship between service provision and production, further complicated by the type of cooperation adopted, pose challenges to the empirical analysis of the effects of intermunicipal cooperation. In the case of cost effects, this can be attributed to the fact that both privatization and intermunicipal cooperation are tools that allow

Provision and production of public services  51 the scale of operation to be enhanced. And in the case of quality effects, it concerns the fact that what is assumed as being the superiority of intermunicipal cooperation with respect to privatization can be weakened when interlocal contracting is used to implement cooperation, given that the host municipality (who is no longer responsible for provision in the municipality served) may still have incentives to reduce quality in order to lower costs. The co-existence of public and private production under cooperative provision, and the differences between diverse types of cooperative arrangements, have been frequently neglected in empirical analyses of the effects of cooperation. Further research will clearly benefit from incorporating these dimensions.

NOTES 1.

Thus, in most countries – especially in those where public services are most developed – supralocal legislation mandates local governments to provide a variety of public services, establishing, in this way, a public provision. Notable exceptions exist, however. For instance, in the United States, local governments can leave essential services, such as waste collection, to pure market provision and a minority of municipalities do just that (see Dubin and Navarro, 1988). 2. Notice that the term ‘financing’ might also be used. In this case, however, rather than referring to the final payment for a good or service, it typically refers to the source of the resources used by a producer to invest in the production of that good or service, as opposed to who ultimately pays for the good or service. Funding of a service is one of the dimensions emphasized in Bozeman (1987) and Bozeman and Bretschneider (1994) when considering the different dimensions of publicness in organizations. 3. We are thankful to all colleagues that provided information or insights for a wide and representative sample of European countries: Ivo Bischof (Germany), Sara Blåka (Norway), Mattia Casula (Italy), Thomas Elston (United Kingdom), Gissur Erlingsson (Sweden), Péteri Gábor (Hungary), Raymond Gradus (The Netherlands), Desislava Kalcheva (Bulgaria), Ivan Kopric (Croatia), Amandine Lerusse (Belgium), Jakub Lysek (Czech Republic), Ole H. Petersen (Denmark), Ringa Raudla (Estonia), Eoin Reeves (Ireland), Pawel Swianiewicz (Poland) and António Tavares (Portugal). 4. Besides service quality, equalitarian delivery of services among cooperating partners has been emphasized as a trigger for cooperation, as well (e.g., Warner and Hefetz, 2002; Warner, 2011), but little empirical assessment of actual effects of IMC on equity is available. Recent literature shows increasing interest in other potential effects of IMC such as responsiveness and resilience. In that regard, Elston and Bel (2021) find that intermunicipal cooperation in housing benefits delivery in England increased resilience after the COVID pandemic’s distortion.

REFERENCES Agranoff, Robert and Michael McGuire. 2003. Collaborative Public Management. New Strategies for Local Governments. Washington, DC: Georgetown University Press. Albalate Daniel, Germà Bel, Raymond Gradus and Eoin Reeves. 2021. Re-municipalization of local public services: incidence, causes and prospects. International Review of Administrative Sciences, 87(3), 419–424. Aldag, Austin, Mildred E. Warner and G. Bel. 2020. It depends on what you share: The elusive cost savings from service sharing. Journal of Public Administration Research and Theory, 20(2), 275–289. Allers, Maarten A. and J. A. de Greef. 2018. Intermunicipal cooperation, public spending and service levels. Local Government Studies, 44(1), 127–150. Andersson, Fredrik, Henrik Jordahl and Jens Josephson. 2019. Outsourcing public services: Contractibility, cost, and quality. CESifo Economic Studies, 65(4), 349–372.

52  Handbook on subnational governments and governance Andrews, Rhys. 2015. Vertical consolidation and financial sustainability: evidence from English local government. Environment and Planning C: Government and Policy, 33(6), 1518–1545. Andrews, Rhys, Judith Clifton and Laurence Ferry. 2022. Corporatization of public services. Public Administration, 100(2), 179–192. Arntsen, Bjørnulf, Dag O. Torjesen and Tor-Ivar Karlsen. 2021. Asymmetry in inter-municipal cooperation in health services – how does it affect service quality and autonomy? Social Science & Medicine, 273, 113744. Baba, Hiroki and Yasushi Asami. 2020. Municipal population size and the benefits of inter-municipal cooperation: panel data evidence from Japan. Local Government Studies, 46(3), 371–393. Banaszewska, Monika, Ivo Bischoff, Eva Bode, Aneta Chodakowska. 2022. Does inter-municipal cooperation help improve local economic performance? Evidence from Poland. Regional Science and Urban Economics, 92, 103748. Bel, Germà. 2020. Public versus private water delivery, remunicipalization and water tariffs. Utilities Policy, 62(100982), 1–8. Bel, Germà and Alejandro Belerdas-Castro. (2022). Provision and production reform of urban fire services: privatization, cooperation and costs. Public Management Review, 24(9), 1331–1354. Bel, Germà, Ivo Bischoff, Sara Blåka, Mattia Casula, Jakub Lysek, Pawel Swianiewicz, António F. Tavares and Bart Voorn. 2023. Styles of inter-municipal cooperation and the multiple principal problem: a comparative analysis of European Economic Area countries. Local Government Studies, 49(2), 422–445. Bel, Germà and Antón Costas. 2006. Do public sector reforms get rusty? Local privatization in Spain. Journal of Policy Reform, 9(1), 1–24. Bel, Germà and Xavier Fageda. 2007. Why do local governments privatise public services? A survey of empirical studies. Local Government Studies, 33(4), 517–534. Bel, Germà and Xavier Fageda. 2009. Factors explaining local privatization: A meta-regression analysis. Public Choice, 139(1/2), 105–119. Bel, Germà and Xavier Fageda. 2017. What have we learnt after three decades of empirical studies on factors driving local privatization? Local Government Studies, 43(4), 503–511. Bel, Germà, Xavier Fageda and Melania Mur. 2014. Does cooperation reduce service delivery costs? Evidence from residential solid waste services. Journal of Public Administration Research and Theory, 24(1), 85–107. Bel, Germà, Xavier Fageda and Mildred E. Warner. 2010. Is private production of public services cheaper than public production? A meta-regression analysis of solid waste and water services. Journal of Policy Analysis and Management, 29(3), 553–577. Bel, Germà and Antonio Miralles. 2003. Factors influencing the privatisation of urban solid waste collection in Spain. Urban Studies, 40(7), 1323–1334. Bel, Germà and Antonio Miralles, 2010. Choosing between service fees and budget funding to pay for local services: Empirical evidence from Spain. Environment and Planning C: Government and Policy, 28(1), 54–71. Bel, Germà and Melania Mur. 2009. Intermunicipal cooperation, privatization and waste management costs: Evidence from rural municipalities. Waste Management, 29(10), 2772–2778. Bel, Germà and Marianna Sebő. 2021. Does inter-municipal cooperation really reduce delivery costs? An empirical evaluation of the role of scale economies, transaction costs, and governance arrangements. Urban Affairs Review, 57(1), 153–188. Bel, Germà and Mildred E. Warner. 2008. Does privatization of solid waste and water services reduce costs? A review of empirical studies. Resources, Conservation and Recycling, 52(12), 1337–1348. Bel, Germà and Mildred E. Warner. 2015. Inter-municipal cooperation and costs: expectations and evidence. Public Administration, 93(1), 52–67. Bel, Germà and Mildred Warner. 2016. Factors explaining inter-municipal cooperation in service delivery: A meta- regression analysis. Journal of Economic Policy Reform, 19(2), 91–115. Binet, Marie-Estelle, Ewen Lebrun and Matthieu Leprince. 2023. Does intermunicipal cooperation favor higher firm creation? French evidence from a natural experiment. Annals of Regional Science, 71(3), 651–670.

Provision and production of public services  53 Blaeschke, Frédéric and Peter Haug. 2018. Does intermunicipal cooperation increase efficiency? A conditional metafrontier approach for the Hessian wastewater sector. Local Government Studies, 44(1), 151–171. Blåka, Sara. 2017a. Does cooperation affect service delivery costs? Evidence from fire services in Norway. Public Administration, 95(4), 1092–1106. Blåka, Sara. 2017b. Service quality, inter-municipal cooperation and the optimum scale of operation: The case of local fire departments in Norway. In J. Trondal (ed.) The Rise of Common Political Order: Institutions, Public Administration and Transnational Space, (pp. 233–250). Edward Elgar Publishing. Blåka, Sara., Dag L. Jacobsen and Tone Morken. 2021. Service quality and the optimum number of members in intermunicipal cooperation: The case of emergency primary care services in Norway. Public Administration, 101(2), 447–462. Bortolotti, Bernardo and Enrico Perotti. 2007. From government to regulatory governance: Privatization and the residual role of the state. The World Bank Research Observer, 22(1), 53–66. Boyne, George A. 1998. The determinants of variations in local service contracting: Garbage in, garbage out? Urban Affairs Review, 34(1), 150–163. Bozeman, Barry 1987. All Organizations Are Public: Bridging Public and Private Organization Theory. Jossey-Bass Publishing. Bozeman, Barry and Stuart Bretschneider. 1994. The “publicness puzzle” in organization theory: A test of alternative explanations of differences between public and private organizations. Journal of Public Administration Research and Theory, 4(2), 197–224. Brown, Trevor L. 2008. The dynamics of government-to-government contracts. Public Performance & Management Review, 31(3), 364–386. Brown, Trevor L. and Matthew Potoski. 2003a. Managing contract performance: A transaction costs approach. Journal of Policy Analysis and Management, 22(2), 275–297. Brown, Trevor L. and Matthew Potoski. 2003b. Transaction costs and institutional explanations for government service production decisions. Journal of Public Administration Research and Theory, 13(4), 441–468. Campos-Alba, Cristina M., Diego Prior, Gemma Pérez-López and José L. Zafra-Gómez. 2020. Long-term cost efficiency of alternative management forms for urban public transport from the public sector perspective. Transport Policy, 88, 16–23. Clifton, Judith, Mildred E. Warner, Raymond Gradus and Germà Bel. 2021. Re-municipalization of public services: trend or hype? Journal of Economic Policy Reform, 24(3), 293–304. Cumbers, Andrew and Franziska Paul. 2022. Remunicipalisation, mutating neoliberalism, and the conjuncture. Antipode, 54, 197–217. Dijkgraaf, Elbert and Raymond Gradus. 2013. Cost advantage cooperations larger than private waste collectors. Applied Economics Letters, 20(7), 702–705. Dubin, Jeffrey A. and Peter Navarro. 1988. How markets for impure public goods organize: The case of household refuse collection. The Journal of Law, Economics, and Organization, 4(2), 217–241. Elston, Thomas and Germà Bel. 2021. Does inter-municipal collaboration improve public service resilience? Evidence from local authorities in England. Public Management Review, 25(4), 734–761. Elston, Thomas and Ruth Dixon. 2020. The effect of shared service centers on administrative intensity in English local government: A longitudinal evaluation. Journal of Public Administration Research and Theory, 30(1), 113–129. Feiock, Richard C. 2009. Metropolitan governance and institutional collective action. Urban Affairs Review, 44(3), 356–377. Feiock, Richard C. and John T. Scholz. 2010. Self-organizing governance of institutional collective actions dilemmas: An overview. In R.C. Feiock and J.T. Scholz (eds.), Self-Organizing Federalism: Collaborative Mechanisms to Mitigate Institutional Collective Action (pp. 3–32). Cambridge University Press. Ferraresi, Massimiliano, Giuseppe Migali and Leonzio Rizzo. 2018. Does intermunicipal cooperation promote efficiency gains? Evidence from Italian municipal unions. Journal of Regional Science, 58(5), 1017–1044. Glaeser, Edward L. and Andrei Shleifer. 2002. Legal origins. Quarterly Journal of Economics, 117(4), 1193–1229.

54  Handbook on subnational governments and governance Gradus, Raymond, Elbert Dijkgraaf and Mattheus Wassenaar. 2014. Understanding mixed forms of refuse collection, privatization and its reverse in the Netherlands. International Public Management Journal, 17(3), 328–343. Hall, David, Emanuele Lobina and Philipp Terhorst. 2013. Re-municipalisation in the early twenty-first century: Water in France and energy in Germany. International Review of Applied Economics, 27(2), 193–214. Hart, Oliver, Andrei Shleifer and Robert W. Vishny. 1997. The proper scope of government: Theory and an application to prisons. Quarterly Journal of Economics, 112(4), 1127–1161. Hefetz, Amir and Mildred Warner, 2012. Contracting or public delivery? The importance of service, market and management characteristics. Journal of Public Administration Research and Theory, 22(2), 289–317. Hefetz, Amir, Mildred Warner and Eran Vigoda-Gadot. 2012. Privatization and intermunicipal contracting: The US local government experience 1992–2007. Environment and Planning C: Government and Policy, 30(4), 675–692. Holzer, Marc and John Fry. 2011. Shared services and municipal consolidation: A critical analysis. Public Technology Institute. Hulst, Rudie and André van Montfort. 2007. Inter-municipal cooperation: A widespread phenomenon. In R. Hulst and A. van Montfort (eds.) Inter-Municipal Cooperation in Europe (pp. 1–21). Springer. Heyman, Victor K. 1961. Government by contract: Boon or boner? Public Administration Review, 21(2), 59–64. La Porta, Rafael, Florencio Lopez-de-Silanes and Andrei Shleifer. 2008. The economic consequences of legal origins. Journal of Economic Literature, 46(2), 285–332. Levin, Jonathan and Steven Tadelis. 2010. Contracting for government services: Theory and evidence from U.S. cities. Journal of Industrial Economics, 58(3), 507–541. Lough, Alexandra, W., 2016. The politics of urban reform in the Gilded Age and Progressive Era, 1870–1920. American Journal of Economics and Sociology, 75(1), 8–22. Lowery, David. 1998. Consumer sovereignty and quasi-market failure. Journal of Public Administration Research and Theory, 8(2), 137–172. Marvel, Mary K. and Howard P. Marvel. 2007. Outsourcing oversight: A comparison of monitoring for in-house and contracted services. Public Administration Review, 67(3), 521–530. McGuire, Michael and Robert Agranoff. 2011. The limitations of public management networks. Public Administration, 89(2), 265–284. Muraoka, Taishi and Claudia N. Avellaneda. 2021. Do the networks of inter-municipal cooperation enhance local government performance? Local Government Studies, 47(4), 616–636. Ostrom, Vincent, Charles M. Tiebout and Robert Warren. 1961. The organization of government in metropolitan areas: A theoretical inquiry. American Political Science Review, 55(4), 831–842. Overman, Sjors. 2016. Great expectations of public service delegation: A systematic review. Public Management Review, 18(8), 1238–1262. Peltzman, Sam. 1976. Toward a more general theory of regulation. Journal of Law and Economics, 19(2), 211–240. Petersen, Ole H., Ulf Hjelmar and Karsten Vrangbæk. 2018. Is contracting out of public services still the great panacea? A systematic review of studies on economic and quality effects from 2000 to 2014. Social Policy and Administration, 52(1), 130–157. Porcher, Simon. 2017. The ‘hidden costs’ of water provision: New evidence from the relationship between contracting-out and price in French water public services. Utilities Policy, 48, 166–175. Posner, Richard A. 1974. Theories of economic regulation. Bell Journal of Economics and Management Science, 5(2), 335–358. Posner, Richard A., 1975. The social costs of monopoly and regulation. Journal of Political Economy, 83(4), 807–827. Reingewertz, Yaniv and Soren Serritzlew. 2019. Special issue on municipal amalgamations: Guest editors’ introduction. Local Government Studies, 45(5), 603–610. Rosell, Jordi and Angel Saz-Carranza. 2020. Determinants of public–private partnership policies. Public Management Review, 22(8), 1171–1190.

Provision and production of public services  55 Silvestre, Hugo C., Rui Cunha Marques and Ricardo Corrêa Gomes. 2018. Joined-up government of utilities: A meta-review on a public–public partnership and inter-municipal cooperation in the water and wastewater industries. Public Management Review, 20(4), 607–631. Silvestre, Hugo C., Rui C. Marques, Brian Dollery and Aldenisio M. Correia. 2019. Shared services in Brazilian local government: Urban development in small counties. Public Administration, 97(3), 686–702. Silvestre, Hugo C., Rui C. Marques, Brian Dollery and Aldenisio M. Correia. 2020. Is cooperation cost reducing? An analysis of public–public partnerships and inter-municipal cooperation in Brazilian local government. Local Government Studies, 46(1), 68–90. Sørensen, Rune J. 2007. Does dispersed public ownership impair efficiency? The case of refuse collection in Norway. Public Administration, 85(4), 1045–1058. Soukopová, Jana and Tomáš Sládeček. 2018. Intermunicipal cooperation in municipal waste management and its effects on cost-effectiveness. Waste Forum, 4(1), 17–25. Stigler, George J. 1971. The theory of economic regulation. Bell Journal of Economics and Management Science, 2(1), 3–21. Stiglitz, Joseph E. 2000. Economics of the Public Sector. W.W. Norton. Szmigiel-Rawska, Katarzyna, Julita Łukomska and António F. Tavares. 2021. The anatomy of choice: An analysis of the determinants of local service delivery in Poland. Local Government Studies, 47(5), 685–711. Tavares, António F. 2018. Municipal amalgamations and their effects: A literature review. Miscellanea Geographica, 22(1), 5–15. Teles, Filipe and Pawel Swianiewicz. 2018. Motives for revisiting inter-municipal cooperation. In F. Teles and P. Swianiewicz (eds.), Inter-Municipal Cooperation in Europe Institutions and Governance (pp. 1–13). Palgrave Macmillan. Tricaud, Clemence. 2022. Better Alone? Evidence on the Costs of Intermunicipal Cooperation. Discussion Paper DP15999. Centre for Economic Policy Research Van Genugten, Marieke, Sandra Van Thiel and Bart Voorn. 2020. Local governments and their arm’s length bodies. Local Government Studies, 46(1), 1–21. Voorn, Bart, Marieke L. van Genugten and Sandra van Thiel. 2017. The efficiency and effectiveness of municipally owned corporations: A systematic review. Local Government Studies, 43(5), 820–841. Voorn, Bart, Marieke L. van Genugten and Sandra van Thiel. 2019. Multiple principals, multiple problems: Implications for effective governance and a research agenda for joint service delivery. Public Administration, 97(3), 671–685. Voorn, Bart, Marieke L. van Genugten and Sandra van Thiel. 2021. Re-interpreting re-municipalization: Finding equilibrium. Journal of Economic Policy Reform, 24(3), 305–318. Warner, Mildred E. 2011. Competition or cooperation in urban service delivery? Annals of Public and Cooperative Economics, 82(4), 421–435. Warner, Mildred E. and Germà Bel. 2008. Competition or monopoly? Comparing privatization of local public services in the U.S. and Spain. Public Administration, 86(3), 723–735. Warner, Mildred E. and Robert Hebdon. 2001. Local government restructuring: Privatization and its alternatives. Journal of Policy Analysis and Management, 20(2), 315–336. Warner, Mildred E. and Amir Hefetz. 2002. Applying market solutions to public services: An assessment of efficiency, equity, and voice. Urban Affairs Review, 38(1), 70–89. Zafra-Gómez, José L., Víctor Giménez-García, Cristina M. Campos-Alba and Emilio J. de la Higuera-Molina. 2020. Direct management or inter-municipal cooperation in smaller municipalities? Exploring cost efficiency and installed capacity in drinking water supply. Water Resources Management, 34(13), 4289–4302. Zeemering, Eric. 2019. Do interlocal contracts seek collaborative efficiency? An investigation of police service delivery in California cities. Public Management Review, 21(7), 968–987.

PART II SUBNATIONAL GOVERNANCE IN LATIN AMERICA

5. The role of subnational governments in international relations: paradiplomacy in Brazil Marylis Fantoni and Claudia N. Avellaneda

5.1 INTRODUCTION This chapter focuses on paradiplomacy: a local governance strategy, involving the participation of subnational governments in international relations. Here paradiplomacy is discussed in the context of Brazilian local governments. In doing so, we first offer a brief historical overview of Brazilian local governments throughout the 20th century until now. Then, we describe the literature of paradiplomacy by explaining its evolution and drivers. This is followed by a discussion of the current state of paradiplomacy in Brazil, highlighting two of its key inhibitors – lack of resources and organizational capacity reported by local governmental officials. We conclude by suggesting some existing international resources and opportunities of which Brazilian local governments may take advantage.

5.2

HISTORICAL OVERVIEW OF BRAZILIAN LOCAL GOVERNMENTS

Local governments are pivotal units in Brazil, providing the majority of services, to the point of being considered the core of the welfare state in the country (Souza, 2016). Municipalities not only enjoy a relatively high level of autonomy, but they also manage a large portion of the country’s public revenue. This autonomous status is deeply rooted in the country’s history throughout the past century and is part of fostering a democratic and egalitarian society. After being under Portuguese dominion for over three centuries, Brazil declared independency in 1822 and remained governed as a monarchy until nearly the end of the century. It was only in 1889 that the country became a presidential republic. In the next century, a dispute developed between the supremacy of military and oligarchic forces and an attempt to create democracy and political representation (Bethell, 1994). This political conflict triggered revolutions, coups, and even the adoption of five different constitutions in this time frame (Alvarado, 2018). Of great importance to this narrative is the 1964 military coup and the resulting military dictatorship that continued until 1985. The period that encompassed the military dictatorship was characterized by a highly centralized, inefficient, and authoritarian regime that persecuted, tortured, and killed hundreds of people. In about 1983, the civil society became mobilized as millions of people pressed for political freedom and the return of direct elections. In 1985, Brazil had its first indirectly elected civilian president as the dictatorship crumbled. In 1989, Brazilians were able to directly elect a president for the first time since the military coup. In 1988, the seventh and current constitution was enacted. 57

58  Handbook on subnational governments and governance Given the context under which the constitution of 1988 was drafted, it brought together different stakeholders, such as political elites and coalitions, who were willing to create lasting changes in the way government should operate. Here, it is important to note the participation of a strong lobby from mayors, who demanded more autonomy and resources, and who were supported by more than half of the constitutional drafters (Souza, 1997). The 1988 constitution greatly advanced democratic agreements that touched on economic, social, and human rights. As it currently stands, Brazil can be categorized as a federal, decentralized, and young democracy. Both the executive and legislative power representatives of all three levels of government (federal, state, and local) are elected through direct, legitimate election procedures every four years. While state and federal representatives are elected concurrently, municipal representatives are not. They are elected two years before federal representatives. Elected representatives from the executive power (president, governor, mayor) can be reelected only once, thus being in office for a maximum of eight consecutive years, while members of the legislative power have no term limits. Brazil is the fifth largest country in the world in terms of area and the sixth in terms of population. A total of 214 million people live across 26 states and a federal district in 5,570 cities (or municipalities). According to the World Economic Outlook database of April 2022 by the International Monetary Fund (IMF), Brazil ranks as the 10th largest economy in the world in terms of nominal GDP (US $1.6 trillion) and ninth in terms of purchasing power parity (US $3.6 trillion), making it a middle-income developing economy. Nonetheless, its level of inequality is quite high with a GINI coefficient of 48.9 as of 2020.1 The wealth share of the top 1% is now 49.6% (2021 Global Wealth Report2 by Credit Suisse). A poverty and equity assessment3 carried out by the World Bank in 2022 shows that 7.8% of Brazilians, approximately 17 million, were living under extremely poor conditions (those living with US $2.25 per day in 2011 PPP). Poverty is also geographically disproportionate. States in the north account for only 13% of the GDP, although they have 28% of the entire population. In contrast, the southeast states account for 55% of the country’s GDP and 43% of the population, according to IBGE. This regional disparity matters because local governments’ abilities to respond to citizens’ needs are uneven (Souza, 2002). Within the context of redemocratization in the late 1980s, as well as great inequality and wealth concentration, local governments gained considerable autonomy and resources with the constitution of 1988. They became responsible for delivering health, education, transportation, social assistance, and urban development, among other services. Several authors highlight the increased role granted to local governments in the 1988 constitution. For instance, Alvarado (2018, p. 142) highlighted that “other innovative features of the Carta Magna were the establishment of urban policies as a constitutional matter, something that had not occurred in the region before, suggesting the social functions of the city in ensuring the well-being of its inhabitants.” Likewise, Souza (2002, p. 2) underlined the “constitution-makers’ decision to upgrade the financial and the political role of the municipalities and of local communities.” However, this upgrade was not the result of initiatives of governments and/or pressure groups. Instead, “the decision to decentralize and to change the system of local governance was therefore a political decision. If not, why would elected representatives acting as constitution-makers bother with it?” (Souza 2002, 2).

Role of subnational governments in international relations  59

5.3

THE ROLE OF LOCAL GOVERNMENTS IN BRAZIL POST-1988 CONSTITUTION

The 1988 constitution allowed for greater local democracy by (1) fostering citizens’ engagement and contributions in topics related to the local government; (2) granting municipalities autonomy and an active role in the process of policy making and implementation; and (3) specifying the highest share of federal and state revenue transfer to date. Adoption of participatory budgeting illustrates the fostering of local democracy. Santos, Araujo, and Silva (2021) point specifically to the article 29 of the 1988 constitution that enabled citizens’ participation in financial matters of local governments. The city of Porto Alegre became the cradle for this initiative in 1989. Under participatory budgeting, citizens come together with elected city councilors and mayors to decide how to allocate municipal resources. According to an article featured in the Washington Post,4 one result of participatory budgeting in Porto Alegre was reducing child mortality by nearly 20%. Given this reassuring outcome, more than 7,000 cities around the world have adopted participatory budgeting, as noted by the Participatory Budgeting Project.5 Additionally, as per the 1988 constitution, cities are also required to create community councils in order to receive federal funding for social initiatives. The expansion of public services offered by local governments came with greater funding and financial transfers from the federal and state levels, earmarking monies for specific social services and adding specific requirements to allow for checks and balances. Local governments share responsibilities with the federal government for delivering certain services, including services for the elderly, disabled, and children in need, as well as housing and sanitation initiatives, and the protection of natural resources, to name a few. However, municipalities have sole responsibility for preschool and primary education, as well as basic healthcare, public transportation, and land use. Given the range of services assigned to municipalities, the constitution drafters ensured local governments would receive funding to support such endeavors. According to Afonso (2014), local governments received 18.3% of Brazil’s total public revenue in 2013, a considerable increase compared to 5.81% in 1960, and 8.57% in 1980. In 2021, municipalities received 19.16% of Brazil’s total public revenues. The federal transfers sent to the cities came from four sources: 22.5% from income tax, 50% from rural property tax, 25% from tax on industrial products, and 70% from tax on financial operations on gold. Local governments also receive state transfers. The state transfers emanate from 25% of value-added tax, 50% from motor vehicle registrations tax, and 25% from tax on exported goods (Souza, 2016). In addition to federal transfers, localities collect their own revenues from local taxes (e.g., service tax, urban property tax, frontage tax, and tax on property title transfers). In terms of local service provision, Souza (2016) highlighted that municipalities have taken the stage for service provision after centuries of playing almost no role in it following the 1988 constitution. This was a major task, since the same document also instituted universal access to healthcare in Brazil. Moreover, program evaluations have shown municipalities have achieved relative success in delivering basic healthcare and essential education over the last decade. This success has been attributed to the incremental takeover of responsibilities and the progressive financial support from federal, state and local funds. In fact, Souza (2016) maintained that the incremental funding received by municipalities in Brazil is what makes

60  Handbook on subnational governments and governance the country distinct from others such as the United States and Argentina, where services were decentralized but not funded. However, while the current fiscal and financial arrangements might seem to favor local governments, they also have some negative consequences, especially to poor and marginalized localities. For instance, smaller cities became highly dependent on transfers from federal and state governments. According to Corbi, Papaioannou, and Surico (2014, p. 6), “Brazilian municipalities have limited ability to raise taxes, which on average correspond to only 6% (4.5%) of total local revenues in our sample of municipalities with less than 51,000 inhabitants.” Furthermore, Afonso and Araujo (2000) showed that in the poorest region of Brazil, more than 200 cities had no means to expand revenue, mainly due to poverty levels and nature of their economic activities. Stark statistics showed that in half the cities (2,698) federal and state transfers make up 90% or more of their total revenue,6 and local taxes make up more than 50% of revenues in only 42 cities.7 Given the high dependence on intergovernmental transfers and earmarked monies, local governments started exploring alternative sources for revenue generation, such as grants and strategic partnerships. In this context, this chapter explores international activities undertaken by local governments in Brazil, with the underlying idea that participating in the international arena might bring economic benefits. Indeed, in 2020 alone, the Organization for Economic Co-Operation and Development (OECD, 2020) reported more than US $161 billion in assistance for developing countries through debt relief, loans, grants, and other international aid tools focused on improving jurisdictions’ welfare and economic development. Therefore, the following section explores the involvement of Brazilian cities in international relations, a governance strategy known as paradiplomacy.

5.4

PARADIPLOMACY IN BRAZIL

Paradiplomacy is a term coined in 1990 and was further expanded to reflect the activities carried out by subnational governments in the international sphere (Aguirre, 1999; Duchacek, 1990; Soldatos & Michelmann, 1992). The international activities include different actions with different motivations. We adopt the paradiplomacy definition offered by Cornago (2000, p. 2): Subnational government involvement in international relations, through establishment of formal and informal permanent or ad hoc contracts, with foreign public or private entities, with the aim to promote socioeconomic or political issues, as well as any other foreign dimension of their own constitutional competence.

While the federal jurisdiction initiates most international relations through diplomatic channels, the growth of paradiplomacy has been steadily increasing over the years. For example, Paquin (2020) points out that in the 1980s only four US states had offices abroad. However, by 2008 that number quickly rose to 42 states with international offices in 30 countries. Paradiplomacy is carried out worldwide, with examples and best practices illustrated in regions of China, Europe, Latin America, and Canada, to name a few (Dommergues, 1992; Lecours, 2008; Cornago, 2000).

Role of subnational governments in international relations  61 Several authors have devoted time and efforts into explaining the motivations behind the participation of subnational governments in paradiplomacy. Lecours (2008) underscores the widely accepted three layers of paradiplomacy: economic, political and cooperation. Economic paradiplomacy refers to activities that encompass the financial motivations of subnational regions, exemplified by actions that foster investment attraction, targeting of new markets through internationalization of companies, and participation in international missions and fairs, among others. The political layer touches on issues of greater independence and distinction of regions that might have separatist ideals or want to affirm greater autonomy from the central government. Lastly, cooperation involves a multidimensional realm of activities ranging from a variety of actions, such as technical cooperation or policy learning. Although other motivations of paradiplomacy exist (Zamorano and Morato, 2014), economic and welfare motivations tend to be the main drivers for participating in it (Duchacek, 1990; Keating, 2000). The layers of paradiplomacy are blurred, being cumulative at times, as economic motives usually lead to cooperation (Lecours, 2008). Moreover, some activities might be symbolic rather than indicating a specific motivation at all. Milani and Ribeiro (2011) surveyed public officials from 29 Brazilian cities with paradiplomatic structures to explore their drivers of paradiplomacy. Most respondents touched on topics pertaining to economic motivations (developing international trade, attracting private/public investment), leading the authors to suggest that economic reasonings are the main motivations behind paradiplomacy in Brazil. Contrary to what one would believe, paradiplomacy is not a new phenomenon for Brazil. Accounts from the 19th century show Brazilian cities interacted with international actors for economic purposes long before it became popular. Maia and Saraiva (2012), for instance, described how several Brazilian states engaged in financial paradiplomacy in the 1890s. Specifically, states signed financial contracts with foreign banking institutions with the purpose of obtaining loans that would later be applied to a variety of projects including infrastructure building. For example, the authors write that the first state to acquire a foreign loan was Espírito Santo in 1894, obtaining £700,000 from a German bank. Following that example, the states of Minas Gerais and São Paulo then signed contracts with French and English banking institutions in 1896 and 1899, respectively (Maia & Saraiva, 2012). While these subnational governments conducted such operations with foreign entities, their price was ridiculously high because the crippling interest rates increased external debt. Although these examples of financial paradiplomacy portray the idea Brazilian subnational governments have been involved in the international arena for a long time, it was only a century later in 1983 and 1987 that two Brazilian states (Rio de Janeiro and Rio Grande do Sul, respectively) decided to formally adopt pro-paradiplomacy institutions (Rodrigues, 2004). Therefore, the formal creation of organizational units dedicated to international matters in the aforementioned states, along with the country’s redemocratization context, proved to be an inflection point in Brazilian paradiplomacy. History shows that after the creation of the Department of International Affairs in Rio Grande do Sul, this state heavily championed the integration between Brazil and Argentina. Such endeavors ultimately led to the signing of the Regional Border Protocol (23) in November of 1988. This protocol promoted the creation of border committees and cooperation between both countries, but most importantly, it marked the first time Brazil recognized the participation of subnational governments in foreign policy (Morais, 2011).

62  Handbook on subnational governments and governance In the 1990s, Brazilian cities started to fully take up the international arena and participate in several bilateral and multilateral activities. This is partly due to several international conferences promoted by the United Nations, one of which took place in Brazil – Rio 1992. Conferences like Rio 1992 and the Habitat 1996, for example, invited and empowered cities to participate actively in international cooperation. In fact, the conference-resulting documents, such as Agenda 21 and Agenda Habitat, place local governments in global decision-making position in terms of sustainability and poverty (Rodrigues, 2004). Consequently, paradiplomacy has become more common over the past 30 years. A national survey of municipalities conducted in 2012 showed more than 100 Brazilian cities have adopted pro-paradiplomacy structures and/or participated in projects of international cooperation (Fantoni and Avellaneda, 2022). Despite the popularization of international relations by subnational governments, it is necessary to recognize that paradiplomacy can also generate jurisdictional issues because it shifts the central government’s role as sole actor in international affairs to include subnational governments (Milani and Ribeiro, 2011). Paradiplomatic efforts tends to fall in a ‘legal and constitutional grey zone’ (Lecours, 2008), as national laws tend to favor the central government as the sovereign authority with exclusive powers to act internationally on behalf of its territory and people. This has motivated some scholars to study how inter-jurisdictional relations affect paradiplomacy (e.g., Lecours, 2008; Paquin, 2020). For instance, Paquin (2020, p. 54) notes that “the more decentralized a country, the more non-central governments have constitutional responsibilities that increase their ability to act in the international arena.” Article 84 of the 1988 constitution clearly states the federal government has exclusive responsibility to maintain relationships with foreign states and develop treaties, conventions and international acts. Nonetheless, as pointed by Milani and Ribeiro (2011), “municipalities and federate-states are given a series of complementary and exclusive responsibilities, and no constitutional statement forbids them from developing international activities” (p. 24, emphasis added). Other authors see paradiplomacy as a zero-sum game. According to Grydehoj (2014, pp. 12–13), practicing paradiplomacy would constitute a “transgression of the sovereign state’s authority” as “jurisdiction is a zero-sum system in the sense that one political entity’s accrual of de facto or de jure jurisdictional capacity can only result from another entity’s absolute or relative loss of this same capacity.” Grydehoj (2014) suggests that to achieve successful paradiplomacy, local governments should acquire the blessing of the national level or carry out international activities as discreetly as possible to remain unnoticed. Not surprisingly, lawmakers in Brazil have opted for the first option by proposing twice to pass legislation that would insert paradiplomacy formally into the constitution, once in 2005 and then again one year later with no success. Formal instruments aiming to oversee and facilitate paradiplomacy in Brazil mostly consist of coordinating units and departments that rely largely on the cooperation of local governments. Meireles (2016) describes two distinct federal policies aimed at dealing with the emergence of paradiplomacy: federative diplomacy and federative international cooperation. Below, we describe these two policies because they show that although paradiplomacy is legally unrecognized in Brazil, the country and even its presidents have actively supported it for more than 20 years now. The first policy of control and coordination was undertaken by President Fernando Henrique Cardoso (1995–2002) through the Ministry of Foreign Affairs. This legislation created bureaucratic structures (a federal department, and state and regional units) to align local governmental goals with those of the federal government. The succeeding president, Luiz Inacio Lula da

Role of subnational governments in international relations  63 Silva (2003–2010), reorganized several of the previously created structures, which weakened ties between local and the federal government and boosted presidential protagonism when it comes to foreign affairs. However, President Lula did incentivize technical cooperation among local governments and foreign actors, leading to the federative international cooperation period. In fact, Meireles (2016) finds that the change in external policy from federative diplomacy to federative international cooperation correlated with an increase eight to nine times more in state-level international relations structures. Milani and Ribeiro (2011) corroborated this fact, as their study of a 72-city sample found 79% of the municipalities created a formal structure of international relations between 2005 and 2007 and called this process local international management. However, the study also revealed 66% of survey respondents expressed concerns about local-federal government relations due to few opportunities for intergovernmental dialogue. Further, the authors said, “Our research also shows that one fourth of surveyed municipalities deploy their international strategies in an isolated fashion, without strategic planning and focus, which implies the absence of an articulated and strategic project in the long term” (p. 29). The study, however, reported 66% of surveyed localities strategically planned their international affairs in collaboration with other municipal secretariats and administrations. In sum, they developed more horizontal rather than vertical collaboration. The last comprehensive survey that explored structures of international relations in Brazilian local governments took place in 2012 through the Municipal Basic Information Survey (MUNIC, as known in Portuguese). The Brazilian Institute of Geography and Statistics (IBGE), a federal agency, carried out the 2012 municipal survey. Local governments were asked six questions (found in the appendix) relating to paradiplomacy and international cooperation. According to the MUNIC survey, 113 cities reported having some sort of organizational structure to conduct paradiplomacy activities in 2012, corresponding to 2% of all Brazilian cities. Bordering states and states with coastline tend to have a greater number of cities with paradiplomacy structures. São Paulo and Rio Grande do Sul report the highest number of local governments with international structures, with 30 and 26 cities, respectively. The survey also breaks down the information into four types of paradiplomacy structures cities may adopt: i) a non-specific paradiplomacy advisor exists (a person carrying out concurrent activities and international relations); ii) presence of a specific paradiplomacy advisor; iii) existence of a formalized paradiplomacy unit (such as a department or secretariat that may include a budget); and iv) any other type. Table 5.1 shows the percentage of cities with a paradiplomacy structure by state, as well as type of structure. According to Table 5.1, formalized paradiplomacy units are the most common type of paradiplomacy structures adopted by Brazilian local governments (47 throughout the country), closely followed by non-specific paradiplomacy advisors (43 cities). Nine cities reported having a specific paradiplomacy advisor, and 14 cities reported having other types of paradiplomacy structures. The survey also shows that of 47 cities with formalized units, only 20 have specific budgets for them. Given the specialized nature of international relations and all the expertise required to deal with actors of different languages and cultures, a study by Fantoni and Avellaneda (2022) found that having a formalized paradiplomacy structure is correlated with a 57% increase in the likelihood of a city having an international cooperation project. The same study shows that any sort of structure is positively correlated with having international cooperation projects.

64  Handbook on subnational governments and governance Table 5.1

Paradiplomacy structure per state and by type – count and percentage

No Paradiplomacy

Non-specific

Specific

Formalized

Structure

Paradiplomacy

Paradiplomacy

Paradiplomacy Unit

Other Structure

Advisor

Advisor State

N

%

State

N

%

State

N

%

State

N

%

State

N

%

AC

16

73

AC

0

0

AC

0

0

AC

1

4.5

AC

5

23

AL

102

100

AL

0

0

AL

0

0

AL

0

0

AL

0

0

AM

62

100

AM

0

0

AM

0

0

AM

0

0

AM

0

0

AP

16

100

AP

0

0

AP

0

0

AP

0

0

AP

0

0

BA

413

99

BA

1

0

BA

0

0

BA

3

0.7

BA

0

0

CE

181

98

CE

1

1

CE

0

0

CE

1

0.5

CE

1

0.5

ES

75

96

ES

1

1

ES

0

0

ES

2

2.6

ES

0

0

GO

244

99

GO

2

1

GO

0

0

GO

0

0

GO

0

0

MA

216

100

MA

0

0

MA

0

0

MA

0

0

MA

1

0.5

MG

848

99

MG

4

1

MG

0

0

MG

1

0.1

MG

0

0

MS

76

97

MS

0

0

MS

0

0

MS

2

2.6

MS

0

0

MT

140

99

MT

0

0

MT

0

0

MT

0

0

MT

1

0.7

PA

143

100

PA

0

0

PA

0

0

PA

0

0

PA

0

0

PB

223

100

PB

0

0

PB

0

0

PB

0

0

PB

0

0

PE

178

96

PE

3

3

PE

0

0

PE

4

2.2

PE

0

0

PI

224

100

PI

0

0

PI

0

0

PI

0

0

PI

0

0

PR

388

97

PR

5

1

PR

0

0

PR

5

1.3

PR

1

0.3

RJ

87

95

RJ

3

3

RJ

0

0

RJ

2

2.2

RJ

0

0

RN

166

99

RN

1

1

RN

0

0

RN

0

0

RN

0

0

RO

52

100

RO

0

0

RO

0

0

RO

0

0

RO

0

0

RR

13

87

RR

0

0

RR

1

6.7

RR

1

6.7

RR

0

0

RS

470

95

RS

12

2

RS

1

0.2

RS

10

2

RS

3

0.6

SC

290

99

SC

0

0

SC

1

0.3

SC

1

0.3

SC

1

0.3 0

SE

75

100

SE

0

0

SE

0

0

SE

0

0

SE

0

SP

615

95

SP

10

2

SP

6

0.9

SP

13

2

SP

1

0.2

TO Total

139 5452

100 98

TO Total

0 43

2 1

TO Total

0 9

0 0.2

TO Total

0 47

0 0.8

TO Total

0 14

0 0.3

Even having a non-specific paradiplomacy advisor raises the likelihood of having an international cooperation project by 42%. Lastly, the authors recognize cities may undertake paradiplomacy without having specific structures. In fact, the MUNIC dataset reveals that 57 cities report having international cooperation projects but no paradiplomacy structures (Fantoni & Avellaneda, 2022). This could suggest that having a paradiplomacy structure might not be a necessary condition for practicing international cooperation at the local level. The 2012 MUNIC survey focuses on the cooperation character of international relations, asking whether local governments receive or offer any international cooperation and, if so, to report the involved parties (government, international organizations, non-governmental organizations, private entities, etc.). The data reveals that 68 cities offer some type of international cooperation, but 144 cities reported they “receive” international cooperation. Furthermore, 71 of those 144 cities reported partnering with other governments, 68 partnered with international organizations, and just 24 partnered with the private sector. The 68 cities offering international cooperation do so mainly in areas related to education, health, economic development, environment, and culture.

Role of subnational governments in international relations  65 A key activity of paradiplomacy is the participation in international networks, such as the C40 Cities Climate Leadership Group or ICLEI (Local Governments for Sustainability), because these groups facilitate exchanging information and best practices among local governments. Fantoni and Avellaneda (2022) found that 121 cities either participate or had participated in any type of city international network. Lastly, the 2012 MUNIC survey also touched on factors that might inhibit the practice of paradiplomacy by Brazilian local governments. Almost 2,000 cities reported organizational capacity issues (such as lack of capacity and human resources) as one limitation. In addition, 1,440 cities reported not having financial resources (their own or those coming from other governmental levels or international organizations) as the main inhibiting factor for participating in paradiplomacy, making this obstacle the second most common. Issues related to the lack of legislation or even political support come last in limiting international activities of cities, with 998 and 785 cities reporting these limitations, respectively. Table 5.2 presents the detailed set of responses related to limitations for international activities. This descriptive analysis also suggests lack of political support is less relevant in constraining paradiplomacy. These findings align with Fantoni and Avellaneda’s (2022) results, which show no correlation between political support (captured with mayor-governor and mayor-president party alignment) and the likelihood of a city having an international cooperation project. Table 5.2  

Main limitations for international activities of local governments

Organizational Capacity

Lack of Resources

Lack of Legislation

Lack of Political Support

Issues %

35

26

18

14

N

1937

1440

998

785

By taking this information together, we suggest cities interested in becoming active in the international sphere might do so by optimizing their human capital. In other words, local governments may not need to adopt fancy and/or formal structures in order to tap into the international arena. As Fantoni and Avellaneda (2022) found, cities with no formal structures still report international activities. All things considered, paradiplomacy could be a relatively easy and inexpensive pursuit to capitalize on the benefits that internationalization has to offer. Milani and Ribeiro (2011) provided an overview of the benefits of paradiplomacy for Brazilian cities, including higher investments, the boosting of international visibility and prestige, as well as national recognition. Future research could quantify benefits from participating in paradiplomacy after taking into account the time and efforts invested into going international.

5.5

CONCLUDING REMARKS

Prior to 1988, Brazilian politics was largely marked by power struggles that led to decades of dictatorship and centralized governments. Then the constitution of 1988 established democracy and granted more power and resources to local governments, especially in terms of policy implementation. Along with having more autonomy, the 5,570 Brazilian local governments

66  Handbook on subnational governments and governance became responsible for providing essential public services to the population. With a growing population and budgets that never seem to be enough, local governments had to innovate to adopt new governance strategies to improve performance and effectiveness in addressing problems. Participating in international relations in response to economic, political, cultural, and/or collaborative motivations is one of the innovative governance strategies practiced by subnational governments. This is a phenomenon known as paradiplomacy. The research conducted here shows that 2% of the Brazilian cities have adopted local structures for practicing paradiplomacy by (a) hiring an advisor for international relations, (b) creating a local unit specific to international affairs, (c) sharing local employees’ labor for international activities, or (d) adopting other structures. It might encourage international cooperation projects and boost investments, thus reducing local dependence on federal and state transfers. Despite its positive outcomes, inhibiting factors preclude certain localities from engaging in paradiplomacy. Data from a 2012 survey revealed that organizational capacity issues and lack of resources are the two major obstacles for practicing paradiplomacy at the local level. However, the same survey revealed that engaging in paradiplomacy may be inexpensive. In fact, having one non-specific paradiplomacy advisor, who helps to internationally connect the city and performs other functions, increases the likelihood of being involved with international cooperation projects. This is promising for Brazilian municipalities, especially ones located in the poorest regions. Mayors and other local governmental officials may capitalize on the benefits of paradiplomacy to pursue economic, cultural, and social well-being goals. This chapters calls for further work on paradiplomacy. For instance, more research is needed to answer the following questions about drivers and moderators of paradiplomacy both at local and provincial levels. Does associativism promote paradiplomacy? Under what contextual conditions is paradiplomacy more likely to emerge? Do leaders’ backgrounds influence paradiplomacy practices? Do triggering factors of diplomacy differ from factors that maintain paradiplomacy? Does geographic proximity lead to adopting it? However, little empirical research also has been devoted to assessing positive and negative effects of paradiplomacy. Does it generate short-term and/or long-term benefits? In the context of Brazil, further work could also be carried out to understand the relationship between local and state governments when it comes to paradiplomacy. Do cities and states work together in their international agendas and goals? We encourage colleagues to answer some of these questions to accumulate knowledge on such an important governance strategy.

NOTES 1. 2. 3. 4. 5. 6.

Source: https://​data​.worldbank​.org/​indicator/​si​.pov​.gini​?end​=​2016​&​start​=​2016​&​view​=​map​&​year​ =​2019 Source: https://​www​.credit​-suisse​.com/​about​-us/​en/​reports​-research/​global​-wealth​-report​.html Source: https://​openknowledge​.worldbank​.org/​bitstream/​handle/​10986/​37657/​P1746​910e33a840​ 7d0b0850b8​f0f5bcf18c​.pdf​?sequence​=​1​&​isAllowed​=​y Source: https://​www​.washingtonpost​.com/​news/​monkey​-cage/​wp/​2014/​01/​22/​brazil​-let​-its​ -citizens​-make​-decisions​-about​-city​-budgets​-heres​-what​-happened/​?noredirect​=​on Source: www​.pa​rticipator​ybudgeting​.org Source: https://​www​.poder360​.com​.br/​economia/​quase​-metade​-das​-cidades​-brasileiras​-dependem​ -90​-ou​-mais​-de​-repasses/​

Role of subnational governments in international relations  67 7.

Source: https://​www​.poder360​.com​.br/​economia/​quase​-metade​-das​-cidades​-brasileiras​-dependem​ -90​-ou​-mais​-de​-repasses/​

REFERENCES Afonso, José Roberto. (2014). Repartição de receitas entre os entes federados. Municípios no Brasil. Paper presented at the Forum de Secretários Municipais de Fazenda, SP. Afonso, José Roberto, and Araujo, Erika Amorim. (2000). “A capacidade de gastos dos municípios brasileiros. Arrecadação própria e receita disponível.” In G. Neves et al. (Eds.), Os Municípios e as Eleições de 2000 (35–56). São Paulo: Konrad Adenauer Stiftung. Aguirre, Iñaki. (1999). “Making sense of paradiplomacy? An intertextual enquiry about a concept in search of a definition.” Regional & Federal Studies, 9 (1): 185–209. DOI: 10.1080/13597569908421078 Alvarado, Arturo. (2018). “The Brazilian constitution of 1988: A comparative appraisal.” Revista de Investigações Constitucionais, 5 (2018): 137–148. Bethell, L. (1994). On democracy in Brazil past and present. ISA Occasional Papers (7). Corbi, Raphael, Elias Papaioannou, and Paolo Surico. (2014). Federal transfer multipliers: Quasi-experimental evidence from Brazil. National Bureau of Economic Research. Cornago, Noé. (2000). “Exploring the global dimensions of paradiplomacy. Functional and normative dynamics in the global spreading of subnational involvement in international affairs.” Workshop on Constituent Units in International Affairs. Forum of Federations. Alemania, Octubre. Dommergues, P. (1992). “The strategies for international and interregional cooperation.” Ekistics, 59 (352/353): 7–12. Duchacek, Ivo D. (1990). “Perforated sovereignties: Towards a typology of new actors in international relations.” In Hans J Michelmann, and Pana Yotis Soldatos (Eds.), Federalism and International Relations: The Role of Subnational Units. Oxford; online edn, Oxford Academic, 31 Oct. 2023, https://​doi​.org/​10​.1093/​oso/​9780198274919​.003​.0001. Fantoni, Marylis, and Avellaneda, Claudia N. (2022). Forthcoming. “Explaining paradiplomacy: Do local pro-international structures and political support matter?” Global Public Policy and Governance, 2: 353–375. Grydehøj, Adam. (2014). “Goals, Capabilities, and Instruments of Paradiplomacy by Subnational Jurisdictions.” In A. Grydehøj et al. (Eds.), Local Actions in a Global Context: Paradiplomacy by Subnational Jurisdictions. (10–20). Brussels: Centre Maurits Coppieters. Keating, Michael. (2000). “Paradiplomacy and regional networking.” Forum of Federations: An International Federalism, Hanover. Lecours, André. (2008). Political issues of paradiplomacy: Lessons from the developed world. The Hague: Netherlands Institute of International Relations ‘Clingendael’. Maia, José Nelson Bessa, and José Flávio Sombra Saraiva. (2012). “A paradiplomacia financeira no Brasil da República Velha, 1890–1930.” Revista Brasileira de Política Internacional, 55 (2012): 106–134. Meireles, Thiago de Oliveira. (2016). Da Diplomacia federativa à cooperação internacional federativa. PhD diss., Universidade de São Paulo, 2016. Milani, Carlos, and Maria Clotilde Meirelles Ribeiro. (2011). “International relations and the paradiplomacy of Brazilian cities: Crafting the concept of local international management.” BAR-Brazilian Administration Review, 8 (2011): 21–36. Morais, Maria Cezilene Araújo de. (2011). “Paradiplomacia no Brasil: uma abordagem sobre a inserção internacional de municípios paraibanos a partir do Programa Plano Diretor.” Ph.D Thesis. (Post-graduate Program in International Relations, Universidade Estadual da Paraíba, João Pessoa), http://​tede​.bc​.uepb​.edu​.br/​jspui/​handle/​tede/​2996 OECD. (2020). Official development assistance detailed summary. https://​www​.oecd​.org/​dac/​financing​ -sustainable​-development/​development​-finance​-data/​ODA​-2020​-detailed​-summary​.pd. Paquin, Stephane. (2020). “Paradiplomacy.” Global Diplomacy: An Introduction to Theory and Practice (49–61). https://​link​.springer​.com/​chapter/​10​.1007/​978​-3​-030​-28786​-3​_4

68  Handbook on subnational governments and governance Rodrigues, Gilberto Marcos Antônio. (2004). “Política Externa Federativa. Análise de Ações Internacionais de Estados e Municípios Brasileiros.” Ph.D. diss., Brazilian Center of International Relations, São Paulo, SP, Brazil. Santos, Daniele Ribeiro Silva dos, Araujo, Nathaly Abner Lima de, and Silva, Lucivaldo Dias da Silva. (2021). “Orçamento público: Relação entre orçamento participativo e políticas públicas, existem benefícios na sua aplicação?” Revista Científica Multidisciplinar Núcleo do Conhecimento, 7 (4): 150–161. Soldatos, Panayotis, and Michelmann, Hans J. (1992). “Subnational units’ paradiplomacy in the context of European integration.” Journal of European Integration, 15 (2-3): 129–134. DOI: 10.1080/07036339208428971 Souza, C. (2002). “Brazil: The prospects of a center-constraining federation in a fragmented polity.” Publius: The Journal of Federalism, 32 (2): 23–48. Souza, Celina Maria. (2016). “Local governments in Brazil: Are they the hub of the Brazilian ‘Welfare State’?” In Ugur Sadioglu and Kadir Dede (Eds.), Comparative Studies and Regionally-Focused Cases Examining Local Governments (280–293). IGI Global. Souza, Celina Maria. (1997). Constitutional Engineering in Brazil: The Politics of Federalism and Decentralization. Macmillan. Zamorano, Mariano Martín, and Arturo Rodríguez Morató (2014). “The cultural paradiplomacy of Barcelona since the 1980s: Understanding transformations in local cultural paradiplomacy.” International Journal of Cultural Policy, 21 (5): 554–576.

Role of subnational governments in international relations  69

APPENDIX 5A Specific questions the 2012 MUNIC survey asked to cities regarding paradiplomacy: ● Is there a specific area of decentralized international cooperation in your organizational structure? ● Does the city receive any sort of international cooperation? ● Does the city offer any sort of international cooperation? ● Does the city participate now or in the past in any type of international city network? ● Are there any projects of decentralized international cooperation in the city? What are the main limitations for the city to participate in international activities?

6. Decentralization in Bolivia: popular support for regional autonomy Alissandra T. Stoyan

6.1 INTRODUCTION1 Though Bolivia has always been and remains a unitary state, in the last 30 years it has transitioned from “one of the most centralized states in Latin America” (Faguet 2012, p. 273) to “the most decentralized of [the region’s] nonfederal states” (Centellas 2010). Bolivia is a fascinating case to explore the dynamics of decentralization, particularly since its reforms have been deep, dramatic, relatively swift, and far-reaching. Regional pressures have been a central motivating factor for decentralizing reforms. The 1994 Ley de Participación Popular (LPP – Law of Popular Participation) was a crucial and dramatic turning point that empowered Bolivian municipalities while explicitly seeking not to extend too much authority to regions. It was not until the mid-to-late 2000s that regional governments gained more power through a series of decrees, the 2009 constitution, and the 2010 Ley Marco de Autonomías y Descentralización “Andrés Ibáñez” (LMAD – Framework Law of Autonomies and Decentralization).2 As a result, a variety of subnational units in Bolivia are now significantly empowered through greater autonomy, direct elections for representatives, and the ability to tax and spend. It also served as an example of decentralization for other countries within the region and throughout the world. And yet, the politics surrounding decentralization were also particularly conflictual. Processes of decentralization – the transfer of resources, responsibilities, or authorities from national to subnational units (Falleti 2010) – can have profound effects on democratic governance. This includes changes in government investment, public service provision, poverty and inequality, government responsiveness, political conflict across levels of government, or even citizen inclusion (Faguet 2004; Niedzwiecki 2018; West 2015). A large body of literature has also assessed how decentralization affects political opinion and behavior. This includes its impact on mechanisms of accountability, voting participation, political engagement, support for democracy, social capital, and institutional trust (Escobar-Lemmon & Ross 2014; Mendoza-Botelho 2013; Rosenblatt et al. 2015; Stoyan & Niedzwiecki 2018).3 But less research has focused on popular support for decentralization within democracies.4 If we consider that decentralization is a political process involving political choices, which is neither inevitable nor irreversible (Montero & Samuels 2004), then understanding public opinion on the topic is essential in democracies. In Bolivia, political struggles over regional autonomy unfolded in the context of the 2006–2008 Constituent Assembly. There were salient conflicts between national and subnational actors, and between traditional elites and previously excluded sectors of society. During his time in office, President Evo Morales also shifted between resisting pressure from autonomy movements to embracing decentralization out of necessity as part of a political bargain with regional elites. For all of these reasons, I argue it is crucial to consider the bases of support for decentralization in Bolivia. 70

Decentralization in Bolivia  71 This chapter has two diverse but complementary goals. First, it aims to describe the politics of the most recent processes of decentralization in the country, focusing particularly on regional tensions pushing for greater autonomy at the departmental (intermediate) level. Secondly, it seeks to analyze an empirical question about the sources of popular support for the expansion of subnational authority. Who supports decentralization to municipal and departmental governments in Bolivia? How have these bases of support changed over time, particularly as Bolivia has adopted greater autonomy at the intermediate level? To achieve both goals within a limited space, this chapter is divided as follows. First, I offer a brief overview of the decentralization process in Bolivia, focusing on several key pieces of legislation. Next, I focus on the intermediate level using data from the Regional Authority Index to describe the nature of decentralization at the departmental level. In the third section, I detail the current structure of subnational government in Bolivia. Finally, I turn to an empirical evaluation of support for decentralization in Bolivia. I use data from the Latin America Public Opinion Project (LAPOP) to analyze public opinion between 2006 and 2012, capturing the period of most dramatic change in the power of the intermediate levels of government. I conclude by offering suggestions for future research about decentralization in unitary states such as Bolivia.

6.2

HISTORICAL TRAJECTORY OF DECENTRALIZATION

While Bolivia’s first constitution in 1826 established provincial and departmental councils, by the end of that century, bureaucratic power was increasingly centralized and consolidated in the national executive and appointed prefects, sub-prefects, and corregidores. Despite the centralization of governance, significant regional heterogeneity, strong regional identities and rivalries, and urban-rural divisions persisted in the country. Federalists pressed for greater regional autonomy from the central government, albeit without great success. Many feared that decentralization would weaken the state or cause its disintegration. Bolivia’s early losses of substantial geographic territory to five neighboring states generated significant skepticism about devolving regional power (Slater 1995, p. 57; Mesa 2012, as cited in Faguet & Shami 2022, p. 92). Politicians worried that empowering regions would lead Bolivia to break apart. The threat may have been well-founded given “the Bolivian paradox of a highly centralized but weak state, and a socially diverse population with weak national identity” (Faguet & Sánchez 2008, p. 1297). Yet, as in much of Latin America, decentralization eventually became a serious topic of debate in Bolivia in the 1990s. Early on, elites demonstrated a great deal of reluctance to devolve power. President Gonzalo Sánchez de Lozada asked, “Why do we want nine bad departmental governments when we already have one in La Paz?” (Slater 1995, p. 57). As regional pressures grew, civil society, technocratic elites, and international financial institutions pushed for decentralization. The governing Movimiento Nacional Revolucionario (MNR – National Revolutionary Movement) faced cross-party regional alliances in Congress and powerful civic strikes in urban centers, especially in Santa Cruz. Likewise, the MNR’s traditionally rural base of support had been declining in favor of new populist parties and candidates. Bolivia was facing a crisis of governability tied to demands for regional autonomy; it also was emerging from an acute economic crisis and possessed a pronounced rural-urban divide in development indicators.

72  Handbook on subnational governments and governance Heralded as “one of the most important reforms in Bolivia, and arguably in South America” (McNulty 2019, p. 92), the 1994 LPP decentralized the country by empowering municipal governments and creating organizaciones territoriales de base (OTBs – Grassroots Territorial Organizations). These bodies represented indigenous communities, peasant communities, and neighborhood organizations. They were responsible for planning and delivering public works and services at the municipal level. The LPP also established the popular election of mayors and municipal councils tasked with coordinating education, infrastructure, and most other local needs (Centellas 2010). In addition to establishing local elections and administrative responsibilities, the LPP transferred resources from the central government based on the population of each municipality. An amount equal to 20% of national expenditures was distributed among Bolivia’s municipalities (Altman & Lalander 2003, p. 63). The LPP was designed in a closed process with the assistance of technocrats and then later debated and approved in Congress. Early drafts suggesting the devolution of power to the regional level were rejected in favor of those focused on the municipal level. Again, the fear of disintegration of the country remained palpable. Reforms were emerging in the context of strong regional identities and rivalries – and there was also a practical concern about creating regionalized bureaucracies (Slater 1995, p. 58). One puzzle, then, is why national-level politicians would choose to enact the LPP – or actually any decentralizing reforms – when it stood to undermine their power. Scholars have advanced a diverse array of explanations. The self-described goal of LPP authors was to increase the quality of democracy in Bolivia by bringing policymaking closer to the people (Altman & Lalander 2003, p. 70). Decentralization was often closely connected to neoliberal reform in the region. Benjamin Kohl (2003) claimed that the LPP was an essential corollary to Bolivia’s Capitalization Law, for example, with both aimed at drawing foreign investment. However, Sánchez de Lozada has argued that the World Bank was not involved in decentralization under his government (Sánchez de Lozada & Faguet 2015, p. 48). Other scholars have claimed that the LPP hoped to strengthen government efficiency, empowering local actors to address pressing issues such as poverty by administrating a budget and local services. However, Faguet & Shami (2022) point out that the LPP also presented a significant opportunity to resolve two pressing issues: increasing regional pressures and declining rural support for the MNR. Notably, by decentralizing primarily to the municipal level rather than the regional level, the LPP avoided strengthening secessionist forces. It also prevented the empowerment of regional governors who could challenge the national executive. Moreover, the MNR was well-organized at the local level throughout Bolivia and thus advantaged, at least initially, in newly established local elections. In the longer run, the LPP also fundamentally reshaped Bolivian party politics. Municipal elections reduced the barriers to entry for smaller or geographically concentrated parties and created a new path to national leadership from local leadership (del Campo & Reinón 2022, p. 3). Despite the intentions of the LPP, regional divisions crystallized in Bolivia in the early 2000s. In contrast to the five core highland departments, Beni, Pando, Santa Cruz, and Tarija are predominantly eastern and southern lowland departments (Klein 2011, p. 264). This informal grouping began to be referred to as the media luna (half-moon) because of the crescent-shaped appearance of the four neighboring departments on a map. Their affinity came from shared cultural, economic, and political characteristics: they were populated by very different indigenous groups than the highlands; rich in gas, oil, and commercial agriculture; and home to growing right-leaning autonomist movements. Of these departments, Santa Cruz

Decentralization in Bolivia  73 became the most populated and economically vibrant; the department’s agro-industrial and financial elites benefitted greatly from implementing neoliberalism and depended heavily on international capital (Webber 2011). In the early 2000s, the department of Santa Cruz accounted for 40% of the country’s total export revenue and 42% of its total tax revenue (Webber 2011). In the same period, the departmental capital city, Santa Cruz de la Sierra, grew rapidly and surpassed the population of the national administrative capital, La Paz.5 Right-wing autonomous movements in the media luna were also built on ethno-racial polarization and xenophobia, distinguishing the media luna’s white-mestizo ‘nación camba’ (Camba Nation) and the ‘collas’ in the indigenous-majority Andean departments (Webber 2011, p. 91). As left-leaning indigenous citizens increasingly mobilized in the highlands in this era, media luna elites were unified under the banner of regional autonomy to protect their socioeconomic interests (Eaton 2007). Thus, the LPP sparked a later push for further deepening autonomy in the mid-to-late 2000s. It allowed indigenous leaders to govern at the local level instead of the traditional mestizo elite, and with this experience, they could exert pressure for even greater autonomy (Alderman 2018).6 In 2005, President Carlos Mesa issued a series of supreme decrees that increased the power of intermediate-level governments. More specifically, he called for departments to receive revenue from hydrocarbon taxes and for direct elections for prefectos (prefects). Prefects were regional leaders that were previously directly appointed by the president.7 Considering this, prefects had served as a crucial link in Bolivia’s hierarchical relationship between the central government and subnational units. After the first prefect elections in 2005, five departments “unilaterally (albeit illegally) declared themselves autonomous. These declarations catapulted the autonomy debate to the center of politics” (Hooghe et al. 2016, p. 212). Under President Evo Morales, the 2009 constitution and the 2010 LMAD further decentralized the country by empowering new types of autonomous subnational governments. In an analysis of the success of indigenous autonomy movements, Van Cott (2001) found that such movements achieved greater autonomy when they participated in directed elected constituent assemblies and possessed influential allies.8 Thus, the opportunities provided by participatory constitutional reforms offered great potential for autonomy advocates in Latin America. The Bolivian Constituent Assembly wrote a new constitution between 2006 and 2009. It aimed to re-found the nation, develop a new social contract, and reshape the relationship between citizens and the state. At the same time, it was an arena where diverse interests clashed in a struggle for power (Stoyan 2020). Many studies of constitution-making processes have emphasized the centrality of the power and preferences of key actors as they seek to maximize their strategic and distributional goals (Hartlyn & Stoyan 2020). Regional interests pushing for autonomy were a central cleavage in the constitutional reform process in Bolivia. Media luna economic elites, particularly in Santa Cruz, recognized the challenge posed by the national dominance of the MAS and indigenous mobilization – and their solution was to demand autonomy (Eaton 2007). After the Constituent Assembly was embroiled in a protracted conflict over its internal voting rules, it eventually reached the end of its mandate before completing its work on the new draft. The national Congress possessed the power to approve an extension, but opposition parties – whose support was based heavily in the media luna – had a majority in the upper house. This gave the opposition leverage for negotiation, resulting in significant substantive changes in the text, including adding a mechanism for a referendum on regional autonomy (Stoyan 2020). In 2008, after the completion of the constitutional text but before its ratification,

74  Handbook on subnational governments and governance Table 6.1

Chronology of the introduction of subnational elections

Subnational Level

Position

Elected

Reforming Law (Year)

Municipal Executive

Mayor (Alcalde)

1987

Organic Law of Municipalities (1985)

Municipal Legislature

Council (Consejo)

1987

Organic Law of Municipalities (1985)

Regional Executive

Prefect (Prefecto)

2006

Supreme Decree (2005)

Regional Executive

Governors (Gobernadores)

2010

Constitution/LMAD (2009-2010)

Regional Legislature

Assembly (Asamblea)

2010

Constitution/LMAD (2009-2010)

opposition prefects organized autonomy votes again in Santa Cruz, Tarija, Beni, and Pando, putting pressure on the national government to implement the promised reforms (Centellas 2010).9 Article 1 of the 2009 constitution defines the state as “unitary… plurinational… decentralized, and with autonomies.” The 2010 LMAD then attempted to “integrate the new legal concept of autonomy into the preexisting regime of municipal and departmental decentralization” (Faguet 2014, p. 54). Administrative divisions were reimagined in the country. Departmental legislatures were to be directly elected, and it created new Autonomías Indígenas Originarias Campesinas (AIOCs – Indigenous Originary Peasant Autonomies). There were two ways to establish an AIOC: through the recognition of previously formally titled Territorios Indígenas Originarios Campesinos (TIOCs – Original Peasant Indigenous Territories),10 or through the conversion of one or more municipalities into indigenous autonomies (Alderman 2018). Establishing an AIOC was complicated, requiring an application process, the approval of local statutes of self-governance, and multiple referenda. There was still fear of extending power to the departmental level because of the potential for secession. The same year that the LMAD was passed, Bolivians were asked by the AmericasBarometer whether – no matter what happens – the country should stay together or break apart; only 3.88% of respondents chose the latter. But increased power at the departmental level challenged the president, Morales, and his party, the Movimientos al Socialismo (MAS – Movement toward Socialism), in ways that would lead him to pursue recentralization (Eaton 2013). However, regional opposition managed to obtain significant concessions in the final text of the 2009 constitution. And in late 2009, Morales reversed course to support autonomy referenda in the departments of La Paz, Cochabamba, Oruro, Potosí, and Chuquisaca, the province of Gran Chaco, and 12 rural municipalities; the referenda passed everywhere except for one municipality (Centellas 2010). Likewise, the changes enacted by the 2010 LMAD fit well with Morales’ commitment to empowering indigenous and rural citizens (Faguet 2014; Faguet & Shami 2022). Subnational resistance to national policies became a vital check on the federal government’s policy preferences (Eaton 2017). To summarize, Bolivia’s process of decentralization occurred piecemeal over several decades. Several different pieces of legislation introduced elections for subnational offices. With the 2009 constitution, the title for regional executives was changed – from prefects to governors. Table 6.1 details the history of these recent changes since the return to democracy in Bolivia. More recently, a few scholars have questioned the extent to which the Bolivian government has managed to recentralize through de facto mechanisms. Eaton (2014) points out that subnational opposition in the media luna resisted formal recentralization while rewriting the constitution, forcing Morales to compromise. However, del Campo & Reinón (2022) argue

Decentralization in Bolivia  75 that subnational autonomy has been limited in practice in recent years because of four factors: political dominance of the MAS; centralizing tendencies of the 2010 LMAD and subsequent legislation; fiscal inequality between municipalities and under-funding of regional (intermediate) levels; and inefficient intergovernmental relations. Under the MAS presidency of Luis Arce, regional tensions have once again resurfaced over the issue of the census. The census was originally scheduled for November 2022, but in July of the same year, the Consejo Nacional de Autonomías (National Council of Autonomies) decided to postpone it. They cited issues related to COVID-19, the incorporation of indigenous languages, and the need to coordinate with municipal governments.11 However, crucially, Santa Cruz opposed the postponement. Governor Luis Fernando Camacho called for a “paro cívico” (civic strike) in September 2022 to pressure the government to hold the census. Beginning in late October, the strike stretched on for 36 days, turning violent and costing the country $1 billion, according to government estimates.12 It finally ended when lawmakers approved a guarantee to hold a census in March 2024 and to make redistributive changes accordingly by September of the same year.13 The census is essential for Santa Cruz because it will determine resources transferred from the central government and representation within the national parliament.14 Between 2001 and the most recent census in 2012, Santa Cruz was the most popular municipal destination for internal migration, adding 32,000 people per year. When including the four surrounding municipalities, the metro area added almost 50,000 people per year over the same period. El Alto and Cochabamba were the next fastest-growing metro areas, while La Paz slightly lost population (Andersen & Jemio 2016, p. 25). In short, cruceños believe that a new census will allocate them additional resources and representation. Of course, as a result, other departments will likely face cuts in budgets and representation.

6.3

EVOLUTION OF INTERMEDIATE (DEPARTMENTAL) AUTHORITY

In general, the intermediate level has gained prominence in Bolivia, rapidly evolving in the wake of the decentralization processes discussed above (Ascarrunz 2015, p. 57). The Regional Authority Index (RAI) from Hooghe et al. (2016) displayed the swift pace of change at this level of subnational government (Figure 6.1). This is a de jure measure of the extent of decentralization to the intermediate level. It directly measures formal regional authority across a variety of dimensions. A commonly used alternative measure is financial data, but departmental spending does not always correlate with departmental fiscal autonomy. For example, “a given government can show high levels of spending (such as Departments in Uruguay), while not having authority over taxes or how to spend that money” (Stoyan & Niedzwiecki 2018, p. 30). Using the RAI data to examine decentralization in Bolivia is also advantageous because it allows for the disaggregation of the concept of decentralization into two distinct dimensions and their component parts, which tap into political, administrative, and fiscal elements of decentralization. The first dimension, self-rule, is “the authority exercised by a regional government over those who live in the region,” while the second, shared-rule, is “the authority exercised by a regional government or its representatives in the country as a whole” (Hooghe et al. 2016, pp. 28–29). As can be seen in Figure 6.1, the RAI differentiates between the formal power ascribed to the Bolivian departments, the autonomous regional government of Gran Chaco,15 the

76  Handbook on subnational governments and governance AIOCs, and other autonomous indigenous territories, which were eliminated with the 2009 constitution. Higher values of the RAI indicate greater fiscal, political, and administrative regional authority. Figure 6.1 shows Bolivia’s trend of increasing regional authority since the mid-1980s.

Source: Author’s elaboration of data from RAI Dataset, Version 3.1 (Hooghe et al. 2016; Shair-Rosenfield et al. 2021).

Figure 6.1

Regional Authority Index in Bolivia (1950–2018)

In Latin America, decentralization took many forms and employed various means of empowering subnational units. Falleti (2010) emphasizes that the sequencing in the path-dependent process of decentralizing reforms is crucial to understanding the extent to which subnational actors are empowered by it. Which mechanisms of decentralization have been the most important in Bolivia? Figure 6.2 disaggregates the RAI into self-rule and shared-rule.16 The data demonstrates that decentralization to Bolivian departments has occurred primarily through strengthening self-rule. Shared-rule, by contrast, has remained relatively unchanged. Moreover, the most significant increase in self-rule occurred in 2005, while the 2010 LMAD had a less dramatic effect on self-rule in comparison. Figure 6.3 disaggregates self-rule further into five component parts: (1) institutional depth, measuring the extent to which a regional government is autonomous rather than deconcentrated; (2) policy autonomy, or the scope and range of policy responsibility, (3) fiscal autonomy, or the ability to tax citizens independently; (4) borrowing autonomy, or the ability to borrow; and (5) representation, or the presence of an independent executive and legislature (Hooghe et al. 2016). By graphing each of these components, it is possible to assess which have played the most central role in the legal changes in Bolivia in recent years. Figure 6.3

Decentralization in Bolivia  77

Source: Author’s elaboration of data from RAI Dataset, Version 3.1 (Hooghe et al. 2016).

Figure 6.2

Components of regional authority in Bolivia (1950–2018)

Source: Author’s elaboration of data from RAI Dataset, Version 3.1 (Hooghe et al. 2016).

Figure 6.3

Components of self-rule in Bolivia (1985–2018)

78  Handbook on subnational governments and governance reveals that changes in representation have had the most substantial impact on self-rule in Bolivian departments since 1985. This reflects Bolivia’s move to directly elected governors and departmental assemblies by 2010. Borrowing autonomy has also played an important role. As explained in greater detail below, the 2010 LMAD greatly expanded the departments’ ability to borrow. In contrast, the other components – institutional depth, fiscal autonomy, and especially policy scope – have remained relatively low in Bolivian departments.

6.4

CONTEMPORARY STRUCTURE AND FEATURES OF SUBNATIONAL GOVERNMENT

Current Bolivian law states that autonomous subnational political authorities must be freely elected by citizens and possess the authority to: “(i) create, administer and collect taxes; (ii) enact local resolutions and regulations; (iii) design and implement local policies, plans, and programs in the judicial, administrative, technical, economic, financial, cultural, and social fields; and (iv) use coercive powers to compel respect for the legal norms and decisions that they implement” (Faguet 2014, p. 54). The country has three administrative divisions representing different levels of subnational governance – (1) departmental, (2) provincial, and (3) municipal – and one administrative division – (4) rural and indigenous territories – that may cut across all of these other levels of government. According to the 2009 constitution, all these administrative divisions have equal status (Hooghe et al. 2016). There are nine departments, one autonomous regional government, 112 provinces, 339 municipalities, and 75 AIOCs.17 At the departmental level, all departments except for Santa Cruz elect governors by simple majority. In Santa Cruz, governors are elected with an absolute majority and a second-round run-off. Governors were first permitted two five-year terms of office, but Bolivia’s high court ruled in 2017 that all elected officials can run for office indefinitely. These elections do not occur concurrently with national-level general elections. In 2021, three departments – Santa Cruz, Pando, and Beni – also elected vice governors for the first time.18 They were elected on a single ticket with governors, just as typically happens with national-level executives. Departmental laws regulate the attributions and functions of the vice governor’s position. Members of departmental legislative assemblies are elected using list PR. A portion of the seats in each assembly are determined by population, and the other portion determined by territory. The number of seats according to population and territory are relatively balanced in six of the nine departments.19 Twenty-five seats across all nine assemblies are reserved for minority indigenous communities; they are selected in advance of the election through usos y costumbres, traditional indigenous customary laws predating colonialism. At the municipal level, autonomous municipal governments elect a mayor by absolute majority and a municipal council using a list PR system and the D’Hondt method. The number of members on the council varies by municipality according to population. Traditional parties in Bolivia experienced precipitous electoral declines throughout the end of the 1990s and the early 2000s. In their place, the MAS grew rapidly, expanding from rural to urban areas, with significant participation of social movements. Decentralizing reforms politicized a formerly latent political cleavage along ethnic/rural and cosmopolitan/urban lines, ultimately undermining traditional elite parties (Faguet 2019). It allowed the MAS to thrive in local elections and expand to the national level (Anria 2018). Despite the participation of a few other parties at both levels of government, the MAS emerged as a hegemonic actor

Decentralization in Bolivia  79 (Vergara 2011). However, despite the success of the MAS, Bolivia’s experience also seems to conform with the view that decentralization inhibits the nationalization of party systems (Harbers 2010). Regional parties have proliferated to resist the MAS at the subnational level. In general, these regional parties cannot expand beyond departmental boundaries (Centellas 2010), producing a striking lack of coherent national opposition. They also tend to be tied to individual candidates, and their performance has been volatile across elections and subnational territories (del Campo & Reinón 2022). Departments have the authority to collect revenue in various ways, including through departmental taxes, statutory transfers, royalties, rights to exploit natural resources, sale of property, credits and loans, donations, and other charges and fees. Likewise, municipal revenue can be procured through municipal taxes, charges and fees, shares of departmental royalties, rights to exploit natural resources, sale of property, and donations (Faguet 2014). However, in practice, most departments and municipalities do not raise their own revenue but instead rely on transfers from the central government. As of 2013, the central government keeps the largest share of total revenues (59.4%). Municipalities take 24.1%, including municipal taxes, and departmental governments get 12.1% (Andersen & Jemio 2016). Earmarks vary by the source of revenue. For example, royalty revenue is not generally earmarked, except for in Tarija.20 On the other hand, departmental revenue from the Impuesto Directo a los Hidrocarburos (IDH – Direct Tax on Hydrocarbons) is stipulated for economic and social development and citizen security (Aresti 2016). Moreover, as of 2007, 30% of this IDH revenue is earmarked to the national pension program and effectively recentralized. Additional portions are earmarked for other national social programs, such as conditional cash transfer programs.

Note: Acronyms in the figure include Special Tax on Hydrocarbon and its Derivatives (IEHD), Heavily Indebted Poor Country (HIPC) debt relief initiative, Direct Tax on Hydrocarbons (IDH). Source: Author’s elaboration of data in Andersen & Jemio (2016, 13).

Figure 6.4

Departmental revenue structures (2013)

80  Handbook on subnational governments and governance The central government has the most diversified income structure. Departmental governments’ incomes are often heavily dependent on hydrocarbon royalties, which Tarija disproportionately receives as the largest producer in the country (Andersen & Jemio 2016).21 The uneven resource distribution patterns across departments lead to very different revenue structures. Municipal transfers are more even, as they primarily come from general tax revenues. In contrast – as Figure 6.4 shows – departmental transfers may be heavily dependent on natural resource royalties and IDH revenue, which in turn depends on natural resource presence and market price.

6.5

SUPPORT FOR DECENTRALIZATION IN BOLIVIA (2006–2012)

This section turns to an empirical analysis of public opinion data from the AmericasBarometer from the Latin American Public Opinion Project (LAPOP 2022). Given the struggles for regional autonomy that played out in Bolivia during this time period, several aspects of respondents’ identity may affect their opinions about subnational autonomy. Since elites from the media luna have played an integral role in pushing for expanded regional autonomy, media luna citizens may be more in favor of subnational authority than citizens from other highland departments. Moreover, given the pressure to recognize indigenous territories and the expansion of fundamentally new forms of autonomy like the AIOCs during this period, rural and indigenous citizens may display more support for subnational authority. Citizens’ support for subnational authority should also depend on aspects of their experience with subnational government. In general, citizens with more positive experiences may display more support for subnational authority – including those with higher assessments of the quality of services provided, their level of trust, and an overall sense of security. Finally, those who think the president (Morales) is doing a good job or who identify with the MAS may display lower support for subnational authority because of the dominance of the party at the national level. I employ three measures of my dependent variable (Table 6.2). I do so because one unfortunate drawback of the data is that the questions about decentralization vary over nearly each survey wave. Each measure is composed of two questions that are combined using factor analysis.22 Though each measure captures opinions about slightly different aspects of decentralization, they all generally gauge citizens’ beliefs about the importance of empowering subnational governments. The first two measures focus on fiscal and administrative aspects of decentralization, and the third measure probes broader perceptions of decentralization. I utilize several measures to capture potentially salient aspects of the identity of respondents. In the LAPOP data for Bolivia, the nine departments are the primary strata in the survey sample design. I use this to code media luna, which takes a value of 1 if respondents live in the eastern lowland departments of Beni, Pando, Santa Cruz, or Tarija, and 0 otherwise. I also employ a question that asks respondents how strongly they identify with their department (e.g., to what extent they feel “cruceño” in Santa Cruz, “paceño” in La Paz, or “cochabambino” in Cochabamba, etc.) on a seven-point scale. In Bolivia, ethnicity can be difficult to capture, so I take a very conservative approach. I code the respondent’s first language spoken at home; this variable receives a score of 1 if it is an Indigenous Language or 0 otherwise. I include political party identification, which measures whether respondents identify with the governing

Decentralization in Bolivia  81 Table 6.2

Measures of subnational authority

Questions

Values

1

In your opinion, should more obligations and more money be

Central [0], All equal [1],

(2006)

given to...?

Departmental [2], Municipal [3]

For the country to develop more, where would you say it is better Central [0], All equal [1], to pay taxes? 2 (2008)

Departmental [2] Municipal [3]

And considering the existing economic resources in the country, Central [0], Equal [1], Municipal [2] who should manage more money? And considering the existing economic resources in the country, Central [0], Equal [1], Departmental [2] who should manage more money?

3

To what extent do you think departmental autonomy will be

(2010 &

positive for the country?

2012)

To what extent do you think indigenous autonomy will be

Not at all [1] – A lot [7] Not at all [1] – A lot [7]

positive for the country?

MAS party (0,1). Finally, I have several standard demographic controls, including age, gender, years of education, whether they live in a rural or urban area, and socioeconomic status.23 Moreover, I include a set of variables meant to capture the respondent’s experience with national and subnational governments. I compose a measure of Trust in Subnational Government, combining trust in municipalities and departments. When using Subnational Authority 3 as the dependent variable (in 2010 and 2012), I break this measure up and use only Trust in Departmental Governments since the dependent variable is focused on the intermediate level. Additionally, I incorporate respondents’ approval of the president, level of engagement with the municipal government, and assessment of the quality of municipal or departmental services.24 Neighborhood Insecurity asks respondents whether they consider the neighborhood where they live to be secure or insecure on a four-point scale, where higher values are more insecure. I also include a measure of respondents’ evaluations of their personal economic situation, Egotropic Economic Evaluation, and a measure of Political Efficacy, asking respondents to what extent they agree that those governing care about what people like them think.25 Tables 6A.1 and 6A.2 in the appendix display the descriptive statistics. The results of these OLS regression analyses are displayed in Table 6.3. Because the LAPOP surveys are not panel surveys, I analyze each year of data separately and am careful not to make comparisons of effect sizes across models. However, these individual surveys measure specific opinions about decentralization over regular intervals as departmental governments were empowered in Bolivia. The results demonstrate the growing importance of decentralization, particularly to citizens in the media luna and among MAS supporters as President Morales changed his stance on the issue. In the interest of conserving space, I leave aside discussions of control variables. The first thing to note is that living in the media luna has a consistent positive and significant effect on opinions of subnational authority starting in 2008. In 2012, moving from highland to lowland departments (media luna) led to about a third of a standard deviation increase in opinions of subnational authority. This fits with the expectation that regional pressures grew stronger during the Constituent Assembly, at work between 2006 and 2008. The strength of regional identity matters less overall, despite achieving statistical significance in a few models, than whether respondents live in departments where regional elites have pushed for greater autonomy. This confirms the salience of the media luna. In contrast, no clear pattern emerges

82  Handbook on subnational governments and governance Table 6.3

Regression analysis of subnational authority 2012

2010

2008

2006

Subnational Authority Subnational Authority Subnational Authority Subnational Authority SE

Coeff

Media Luna

0.035

0.052

Trust in Subnational Gov’t.

0.027

0.010

MAS Party ID

-0.121

0.054

Presidential Approval

-0.128

0.035

***

0.033

0.017

*

SE

Coeff

0.259

0.045

***

***

0.040

0.008

***

**

-0.152

0.056

***

-0.251

0.024

***

-0.012

0.014

Trust in Departmental Gov’t.

Regional Identity Indigenous Language

0.011

0.065

Age

0.005

0.002

***

*

0.073

0.038 0.031

Quality of Department Services

0.086

0.033

***

-0.077

0.026

***

0.015

0.038

Constant

-0.381

0.258

N

1878

Neighborhood Insecurity Egotropic Economic Evaluation Political Efficacy

0.117

0.026 ***

0.099

0.027 ***

0.028

0.010 ***

0.006

0.010

0.052

-0.007

0.054

0.001

0.001

*

0.005

0.045

0.013 *** 0.065 **

0.001

0.004

Municipal Engagement

0.236 0.128

0.067

0.010

Quality of Municipal Services

0.013 *** 0.050 **

0.000

-0.002 *

0.266 0.108

*

0.006 0.022

0.044 ***

***

0.005 0.047

SE

0.054

0.007 -0.001

0.308

0.001

0.000 -0.079

0.044 ***

Coef

0.004

Education Rural

0.255

SE

-0.095

Socioeconomic Status Woman

3

3

2

1 Coeff

0.008

0.005

0.001

0.005

0.004

0.004

0.014

0.004 ***

0.062

0.047

0.049

0.045

0.084

-0.041

0.038

-0.029

0.038

-0.010

0.045 * 0.038

0.048

0.035

0.025

0.033

0.018

0.038

0.004

0.024

-0.002

0.024

0.097

0.027 ***

-0.005

0.022

-0.007

0.024

-0.030

0.034

0.030

0.030

-0.059

0.022

-0.043

0.028

***

-0.054

0.012

***

0.074

0.013 ***

0.049

0.013 ***

0.632

0.219

***

-2.008

0.204 ***

-2.104

0.197 ***

2340

2131

2133

30.66 (0.000)

46.44 (16, 2114)

43.79 (16, 2116)

F (16, 1861)

6.08 (16, 1861)

Prob > F

0.000

0.000

0.000

0.000

R^2

0.050

0.174

0.260

0.249

Note:  OLS Regression with two-tailed tests of significance where * < 0.1; ** < 0.05; *** < 0.0.

regarding the impact of rural or indigenous respondents, at least as measured conservatively through language. The models in Table 6.3 demonstrate mixed evidence relating to experiences with subnational governments. The strongest and most consistent result is for Trust in Subnational Government or Departmental Government in 2010 and 2012. Across all models, the effects of these variables on Subnational Authority are positive and statistically significant, holding all other variables in the models constant. The effect is quite sizeable; in 2012, a one-unit increase in Trust in Departmental Government led to about a quarter of a standard deviation change in Subnational Authority on average. Municipal engagement, evaluations of services, and Neighborhood Insecurity display no consistent effects across time. Finally, there are nuanced results regarding identifying with the MAS or approving of President Morales. Since regional forces remained an essential check on the power of Morales and the MAS, I expected that supporters of the president and his party would display lower support for decentralization. However, the results seem to reflect Morales’ reversal – from resistance to decentralization to embracing it. In 2006 and 2008, MAS Party ID and Presidential Approval are both negative and significant. But starting in 2010, they are generally positive and significant across all the other models. The reversal of sign indicates that MAS sympathizers and supporters of President Morales reversed their opinions around

Decentralization in Bolivia  83 the same time the government embraced decentralization out of political necessity, with the adoption of the 2009 constitution and the 2010 LMAD. In sum, the temporal dynamics here support a more nuanced view, which also fits with observations of the decentralization process detailed above.

6.6 CONCLUSION This chapter has sought to provide an overview of modern processes of decentralization in Bolivia and evaluate the popular bases of support for decentralization as this process unfolded. The Bolivian process of decentralization unfolded piecemeal over the course of decades. It was driven by significant regional conflict, and the hardening of important regional identities. The empirical analysis of public opinion mirrors the descriptive narrative regarding the dynamics of decentralization and the sources of conflict throughout the process. Since 2008, media luna citizens were more likely to support extending greater power and authority to subnational governments, or to view subnational authority as positive. As Morales and the MAS were forced to embrace decentralization as part of a political pact, their supporters experienced a reversal of their opinion of subnational authority. Hence, to some extent, these results also display how citizens may embrace elite discourse (in pushing for or resisting regional autonomy). At the same time, the present analysis has several limitations presenting opportunities for future research. Unfortunately, more recent LAPOP surveys combine respondents in departments in ways that hinder an account of region-specific identities or the possibility of subnational analysis. While studies at the subnational level have increased in Latin America recently, they are heavily focused on the region’s federal countries. Though Bolivia is unitary, the present chapter has detailed how regional forces have influenced politics. More recently, some have questioned whether the national government is pushing for recentralization in Bolivia (del Campo & Reinón 2022). Future research must resolve the challenges associated with subnational data collection to allow for subnational analyses, particularly in unitary countries. Finally, future research about processes of decentralization could advance our understanding of the relationship between citizen support for decentralization and elite strategies about whether and how to pursue reforms in democracies. There are likely some feedback effects in this relationship. Though I have traced an alignment between popular opinion and elite dynamics during decentralization in Bolivia, Eaton (2007) also details elite tactics aimed at manipulating public opinion in pursuit of regional autonomy. Santa Cruz business elites utilized tactics to “divide and conquer,” preventing alliances between highland and lowland indigenous groups within their department. Thus, the dynamics of public opinion may be much more complex than what this analysis has captured using LAPOP data, and future studies could and should go further.

NOTES 1.

I would like to thank Sara Niedzwiecki, Hanna Kleider, Zoila Ponce de Leon, and the editors of this volume for their feedback on various parts of this chapter.

84  Handbook on subnational governments and governance 2. In the interest of space, I focus on the most important pieces of legislation. For a more comprehensive overview of laws and, particularly, the redistribution of funds to subnational governments in Bolivia, please see Andersen & Jemio (2016, p. 4; Appendix B). 3. Though much of the Latin American literature places a close association between democracy and decentralization, likely both because the timing of such reforms in Latin America and the view that decentralization will strengthen democracy by bringing the government closer to the people, Kent Eaton (2006) demonstrates how subnational capacity was often strengthened because of periods of non-democracy in the region. 4. For an exception, see Montalvo (2009). 5. Bolivia has two capital cities. La Paz is home to the executive and legislative branches, while Sucre is the constitutional capital and home to the judicial branch. 6. Some might even claim that Evo Morales’ rise to the presidency was reflective of this new generation of political leaders empowered by decentralization (Centellas 2010). 7. Bolivia had prefectos until 2010, when prefecturas were replaced by gobiernos autónomos deparatamentales (autonomous departmental governments), and the executive position became known as gobernadores (governors). 8. At the time of writing, Van Cott (2001) considered Bolivia as a failed case because the legitimacy and governability crises experienced by the country had not yet led to a constituent assembly process. Just a few years later, of course, it did. 9. These autonomy measures were referenda held in each department to establish greater regional control over natural resources and governance. They passed overwhelmingly, but with high abstention. Morales claimed the votes were illegal; yet the display of popular support also drove him to bargain with governors in these regions. 10. Before that, these were known as Tierras Comunitarias de Origen (TCOs – Indigenous Community Lands) 11. https://​www​.la​-razon​.com/​nacional/​2022/​07/​12/​el​-consejo​-nacional​-de​-autonomias​-determina​ -pedir​-la​-postergacion​-del​-censo​-hasta​-2024/​ (Accessed: July 14, 2022) 12. https://​abi​.bo/​index​.php/​noticias/​internacional/​36​-notas/​noticias/​economia/​30549​-bolivia​ -soportara​-el​-dano​-economico​-de​-us​-1​-200​-mm​-causado​-por​-el​-paro​-civico​-asegura​-el​-vocero (Accessed: November 30, 2022) 13. https://​www​.latintimes​.com/​general​-strike​-bolivias​-farming​-region​-ends​-census​-date​-finalized​ -534668 (Accessed: November 30, 2022). 14. Similarly, Alderman (2018, 14) describes how the previous 2012 census generated competition among municipalities for resources, leading communities to put pressure on their inhabitants to be present. 15. Gran Chaco is one of six provinces within the department of Tarija that voted to become an autonomous region in 2009. Remote, isolated, and sparsely populated, the province has a distinct regional identity and contains the largest reserves of natural gas of any province in Bolivia. In 1983, alongside other nearby departments, Gran Chaco began pushing for autonomy as a ‘tenth department’ – though this never came to be. Motivated by grievances over the unequal distribution of resources within resource-rich Tarija, local elites pushed for 45% of Tarija’s gas royalties. But autonomy could not be realized until the 2009 constitution. For much more on this, see Anthias (2022). 16. AIOCs and other special territories at the intermediate level are not included for simplicity of presentation. 17. The number of many of these units has grown over time. For example, there were initially only 24 municipalities upon the adoption of the 1994 LPP. 18. Subnational elections were to be held in 2020 but were postponed until 2021 because of the COVID-19 pandemic. 19. However, Beni assigns no seats according to population, and Pando assigns only three. Santa Cruz also allocates more seats according to territory (Observatorio de Género 2021). 20. The governor of Tarija must transfer 45% of all royalty revenue to Gran Chaco (Aresti 2016). 21. Many other sources of revenue depend upon the size of the department’s population. 22. Principal-component factor analysis with rotation is used; in all three cases, these sets of questions load on a single factor, which is retained for each measure. All four measures of Subnational Authority are treated as continuous measures.

Decentralization in Bolivia  85 23. Socioeconomic status is measured using a weighted additive index of common household items present in the respondent’s home. Items in the index are weighted by how prevalent they are overall in the sample. 24. Unfortunately, departmental services are only included in the 2006 survey. 25. This last measure is available in all years except for 2006.

REFERENCES Alderman, Jonathan. 2018. “Indigenous Autonomy and the Legacy of Neoliberal Decentralization in Plurinational Bolivia.” Latin American and Caribbean Ethnic Studies. 13(1): 1–21. Altman, David & Rickard Lalander. 2003. “Bolivia’s Popular Participation Law: An Undemocratic Democratisation Process?” In Axel Hadenius, Ed. Decentralisation and Democratic Governance: Experiences from India, Bolivia and South Africa. Stockholm: Expert Group on Development Issues. 63–103. Andersen, Lykke E. & Luis Carlos Jemio. 2016. “Decentralization and Poverty Reduction in Bolivia: Challenges and Opportunities.” Instituto de Estudios Avanzados en Desarollo (INESAD). Development Research Working Paper Series. 01/2016. Anria, Santiago. 2018. When Movements Become Parties: The Bolivian MAS in Comparative Perspective. Cambridge: Cambridge University Press. Anthias, Penelope. 2022. “The Pluri-Extractivist State: Regional Autonomy and the Limits of Indigenous Representation in Bolivia’s Gran Chaco Province.” Journal of Latin American Studies. 54(1): 125–154. Aresti, María Lasa. 2016. “Revenue Sharing Case Study: Oil and Gas Revenue Sharing in Bolivia.” Natural Resource Governance Institution. https://​www​.resourcegovernance​.org/​analysis​-tools/​ publications/​revenue​-sharing​-case​-study​-oil​-and​-gas​-revenue​-sharing​-bolivia (Accessed: November 6, 2022). Ascarrunz, Julio. 2015. “La relación nacional-departamental en Bolivia: Una mirada multinivel al nuevo escenario político del país.” Politai: Revista de Ciencia Política. Año 6, primer semestre, Nº 10: pp. 39–59. Centellas, Miguel. 2010. “Bolivia’s Radical Decentralization.” Americas Quarterly (July 21). https://​ www​.americasquarterly​.org/​fulltextarticle/​bolivias​-radical​-decentralization/​ (Accessed: March 1, 2022). Del Campo, Esther & Manuel Sánchez Reinón. 2022. “Dencentralization or Recentalisation in Bolivia? Autonomous Territorial Entities and Intergovernmental Relations in a Decentralized State.” Public Organization Review. https://​doi​.org/​10​.1007/​s11115​-022​-00653​-6. Domínguez R., Edmé & Marcia Pacheco O. 2018. “Beyond Parity in Figures: The Challenges in Reality of Municipal Women Councillors in Bolivia.” Iberoamerica – Nordic Journal of Latin American and Caribbean Studies. 47(1): 1–12. Eaton, K. 2006. “Decentralization’s Nondemocratic Roots: Authoritarianism and Subnational Reform in Latin America.” Latin American Politics and Society. 48(1): 1–26. Eaton, Kent. 2007. “Backlash in Bolivia: Regional Autonomy as a Reaction against Indigenous Mobilization.” Politics and Society. 35(1): 71–102. Eaton, K. 2013. “The Centralism of ‘Twenty-First-Century Socialism’: Recentralising Politics in Venezuela, Ecuador and Bolivia.” Journal of Latin American Studies. 45(3): 421–450. Eaton, Kent. 2014. “Recentralization and the Left Turn in Latin America: Diverging Outcomes in Bolivia, Ecuador, and Venezuela.” Comparative Political Studies. 47(8): 1130–1157. Eaton, Kent. 2017. Territory and Ideology in Latin America: Policy Conflicts between National and Subnational Governments. Oxford University Press. Escobar‐Lemmon, Maria, & Ashley D. Ross. 2014. “Does Decentralization Improve Perceptions of Accountability? Attitudinal Evidence from Colombia.” American Journal of Political Science. 58(1): 175–188. Faguet, Jean-Paul. 2004. “Does Decentralization Increase Government Responsiveness to Local Needs? Evidence from Bolivia.” Journal of Public Economics. 88: 867–893.

86  Handbook on subnational governments and governance Faguet, Jean-Paul. 2012. Decentralization and Popular Democracy: Governance from Below in Bolivia. University of Michigan Press. Faguet, Jean-Paul. 2014. “Can Subnational Autonomy Strengthen Democracy in Bolivia?” Publius. 44(1): 51–81. Faguet, Jean-Paul. 2019. “Revolution from Below: Cleavage Displacement and the Collapse of Elite Politics in Bolivia.” Politics & Society. 47(2): 205–250. Faguet, Jean-Paul & Fabio Sánchez. 2008. “Decentralization’s Effects on Educational Outcomes in Bolivia and Colombia.” World Development. 36(7): 1294–1316. Faguet, Jean-Paul & Mahvish Shami. 2022. “The Incoherence of Institutional Reform: Decentralization as a Structural Solution to Immediate Political Needs.” Studies in Comparative International Development. 57(1): 85–112. Falleti, Tulia. 2010. Decentralization and Subnational Politics in Latin America. Cambridge: Cambridge University Press. Harbers, Imke. 2010. “Decentralization and the development of nationalized party systems in new democracies: Evidence from Latin America.” Comparative Political Studies. 43(5): 606–627. Hartlyn, Jonathan, & Alissandra T. Stoyan. 2020. “Constitutions in Latin American Politics.” Oxford Research Encyclopedia of Politics. DOI: 10.1093/acrefore/9780190228637.013.1685. Hiskey, Jonathan T., & Mitchell A. Seligson. 2003. “Pitfalls of Power to the People: Decentralization, Local Government Performance, and System Support in Bolivia.” Studies in Comparative International Development. 37(4): 64–88. Hooghe, Liesbet, Gary Marks, Arjan Schakel, Sara Niedzwiecki, Sandra Chapman-Osterkatz, & Sarah Shair-Rosenfield. 2016. Measuring Regional Authority: A Postfunctionalist Theory of Governance, Vol. 1. Oxford University Press. Klein, Herbert S. 2011. A Concise History of Bolivia, Second Edition. Cambridge: Cambridge University Press. Kohl, Benjamin. 2003. “Democratizing Decentralization in Bolivia: The Law of Popular Participation.” Journal of Planning Education and Research. 23: 153–164. McNulty, Stephanie. 2019. Democracy from Above: The Unfulfilled Promise of Nationally Mandated Participatory Reforms. Stanford University Press. Mendoza-Botelho, Martín. 2013. “Social Capital and Institutional Trust: Evidence from Bolivia’s Popular Participation Decentralization Reforms.” The Journal of Development Studies. 49(9): 1219–1237. Montalvo, Daniel. 2009. “Who Should Manage Public Funds in Latin America?” AmericasBarometer Insights. No. 31: 1–5. Montero, Alfred P., & David J. Samuels, Eds. 2004. Decentralization and Democracy in Latin America. Notre Dame, IN: The University of Notre Dame Press. Niedzwiecki, Sara. 2018. Uneven Social Policies: The Politics of Subnational Variation in Latin America. Cambridge: Cambridge University Press. Postero, Nancy, & Jason Tockman. 2020. “Self-Government in Bolivia’s First Indigenous Autonomy: Charagua.” Latin American Research Review. 55(1): 1–15. Rosenblatt, Fernando, Germán Bidegain, Felipe Monestier, & Rafael Piñeiro Rodríguez. 2015. “A Natural Experiment in Political Decentralization: Local Institutions and Citizens’ Political Engagement in Uruguay.” Latin American Politics and Society. 57(2): 91–110. Rousseau, Stéphanie. 2019. “Bolivia: Parity, Empowerment, and Institutional Change.” In Mona Lena Krook, Netina Tan, Susan Franceschet, Eds. The Palgrave Handbook of Women’s Political Rights. Palgrave Macmillan. 393–403. Sánchez de Lozada, G., & Faguet, J. P. 2015. “Why I Decentralized Bolivia.” In J. P. Faguet & C. Poschl, Eds. Is Decentralisation Good for Development? Perspectives from Academics and Policymakers. Oxford University Press. 31–67. Shair-Rosenfield, Sarah, Arjan H. Schakel, Sara Niedzwiecki, Gary Marks, Liesbet Hooghe, & Sandra Chapman-Osterkatz. 2021. “Language Difference and Regional Authority.” Regional and Federal Studies. 31(1): 73–97. Slater, David. 1995. “Democracy, Decentralization and State Power: On the Politics of the Regional in Chile and Bolivia.” Yearbook, Conference of Latin Americanist Geographers. 21: 49–65.

Decentralization in Bolivia  87 Stoyan, Alissandra T. 2020. “Ambitious Reform via Constituent Assemblies: Determinants of Success in Contemporary Latin America.” Studies in Comparative International Development. 55(1): 99–121. Stoyan, Alissandra T., & Sara Niedzwiecki. 2018. “Decentralization and Democratic Participation: The Effect of Subnational Self-Rule on Voting in Latin America and the Caribbean.” Electoral Studies. 52: 26–35. The AmericasBarometer by the LAPOP Lab, www​.vanderbilt​.edu/​lapop. Van Cott, Donna Lee. 2001. “Explaining Ethnic Autonomy Regimes in Latin America.” Studies in Comparative International Development. 35(4): 30–58. Vergara, Alberto. 2011. “United by Discord, Divided by Consensus: National and Sub-national Articulation in Bolivia and Peru, 2000–2010.” Journal of Politics in Latin America. 3(3): 65–93. Webber, Jeffrey R. 2011. From Rebellion to Reform in Bolivia: Class Struggle, Indigenous Liberation, and the Politics of Evo Morales. Chicago: Haymarket Books. West, Karleen Jones. 2015. “Decentralization, the Inclusion of Ethnic Citizens, and Support for Democracy in Latin America.” Latin American Research Review. 50(3): 46–70.

88  Handbook on subnational governments and governance

APPENDIX 6A Table 6A.1

Descriptive statistics 2006 & 2008 2006

2008

Variable

N

Mean

SD

Min

Subnational Authority (1)

2,486

0.00

1.00

2,755

0.00

1.00

Women

3,008

1.51

0.50

1

2

2,999

1.50

0.50

1

2

Age

3,007

36.97

15.34

18

90

2,999

36.90

15.20

18

93

Education

3,008

9.88

5.31

0

24

2,983

9.95

4.89

0

18

Socioeconomic Status

2,985

6.88

6.03

0

26.43

2,955

7.27

5.54

0

25

Rural

3,008

2.14

1.30

1

4

2,999

1.37

0.48

1

2

Media Luna

3,008

0.43

0.50

0

1

2,999

0.43

0.50

0

1

Regional Identity

2,982

6.16

1.33

1

7

2,974

6.25

1.35

1

7

Indigenous Language

3,004

0.25

0.43

0

1

2,989

0.26

0.44

0

1

Trust in Subnational Gov’t.

2,791

8.17

2.70

2

14

2,843

8.45

2.65

2

14

MAS Party ID

3,008

0.31

0.46

0

1

2,999

0.17

0.37

0

1

Presidential Approval

2,794

3.36

0.69

1

5

2,962

3.18

0.91

1

5

Municipal Engagement

2,951

0.29

0.60

0

2

2,947

0.25

0.56

0

2

Quality of Municipal Services

2,904

2.92

0.84

1

5

2,888

3.06

0.83

1

5

Quality of Department Services

2,539

2.92

0.80

1

5

Neighborhood Insecurity

2,968

2.53

0.90

1

4

2,981

2.44

0.89

1

4

Egotropic Economic Evaluation

2,946

2.13

0.60

1

3

2,960

2.00

0.72

1

3

2,804

3.60

1.67

1

7

Min

Max

-2.17

Max

Subnational Authority (2)

Political Efficacy

Table 6A.2

N

Mean

SD

Min

Max

0.73 -1.68

1.11

Descriptive statistics 2010 & 2012 2010

2012

Variable

N

Mean

SD

Subnational Authority (3)

2,668

0.00

1.00

Women

3,018

1.50

0.50

Age

3,017

37.16

Education

3,011

Socioeconomic Status

2,962

Rural

Min -2.38

Max

N

Mean

SD

2.06

2,562

0.00

1.00

-2.15

1

2

3,029

1.50

0.50

1

2.03 2

15.11

18

88

3,029

37.44

15.29

17

89

10.23

4.60

0

18

3,026

9.83

4.90

0

18

6.98

5.26

0

25

3,028

7.15

5.46

0

25

3,018

1.37

0.48

1

2

3,029

1.37

0.48

1

2

Media Luna

3,018

0.43

0.50

0

1

3,029

0.43

0.50

0

1

Regional Identity

3,003

2.69

2.17

1

7

2,754

2.68

2.14

1

7

Indigenous Language

3,004

0.23

0.42

0

1

3,017

0.23

0.42

0

1

Trust in Departmental Gov’t.

2,867

7.92

2.61

2

14

2,832

3.76

1.55

1

7

MAS Party ID

3,018

0.22

0.41

0

1

3,029

0.11

0.31

0

1

Presidential Approval

2,963

3.42

0.86

1

5

3,007

3.06

0.84

1

5

Municipal Engagement

2,915

0.23

0.54

0

2

2,989

0.21

0.50

0

2

Quality of Municipal Services

2,669

3.02

0.82

1

5

2,907

2.98

0.75

1

5

Neighborhood Insecurity

2,983

2.37

0.86

1

4

3,012

2.34

0.80

1

4

Egotropic Economic Evaluation

2,944

2.07

0.56

1

3

2,990

1.92

0.64

1

3

Political Efficacy

2,873

3.89

1.61

1

7

2,840

3.31

1.66

1

7

7. Unbalanced multilevel governance in Colombia: fiscal federalism and political bargaining with weak administrative decentralization Santiago Leyva, Pablo Sanabria-Pulido, and Ricardo A. Bello-Gómez

7.1 INTRODUCTION In recent decades, countries around the world, including Colombia, have adopted hybrid intergovernmental relations (IGR) models that incorporate critical aspects of federalism while retaining formally centralized systems. Colombia’s decentralization process epitomizes one of the most ambitious efforts in the Latin American region (Konrad Adenauer Stiftung, 2010) to provide greater leeway and autonomy to regional authorities while maintaining coordination and convergence at the central/national level. This chapter shows that after almost four decades, Colombia’s decentralization process has chiefly emphasized fiscal and political decentralization while disregarding critical elements of public management reform and neglecting the construction of an administrative apparatus. This case explores the challenges in the implementation of a dual system of IGRIGR (Bello-Gomez & Sanabria-Pulido, 2021). Colombian decentralization has neglected critical aspects of local public administration capacity by prioritizing fiscal goals, governability (in terms of political arrangements between national and regional political elites and patrons), and subnational politics. On the one hand, the process did not provide a clear role for the national government in supporting the capacity building of subnational governments. On the other hand, decentralization privileged fiscal goals and the electoral and clientelist priorities of regional political patrons, rather than effectively improving the capacities of subnational governments. We refer to this situation as Weak Administrative Decentralization. The next section presents the structure of Colombia’s subnational governments. Section 3 analyzes the evolution of the IGR model in Colombia. The following discussion assesses whether decentralization has worked for Colombia’s’ subnational units, illustrating how the reforms balanced administrative weaknesses with a more prominent role for politicians. The fifth section presents the key problems and challenges of the public policy model, followed by a section describing recent initiatives to correct the deficiencies and failures of the existing decentralization model. Finally, we offer concluding remarks.

89

90  Handbook on subnational governments and governance

7.2

COLOMBIA’S SUBNATIONAL GOVERNMENT STRUCTURE

The Colombian intergovernmental system integrates three levels: 1,105 municipalities at the local level, 32 departamentos at the intermediate level, and the central government. Each departamento comprises several municipalities, over which it exercises some degree of jurisdictional authority. Meanwhile, the capital city of Bogota constitutes an autonomous capital district that does not belong to any departamento. Municipalities are governed by mayors with executive and administrative authority and a corporate body (municipal council) that provides oversight and political control. Similarly, the departamentos are ruled by governors and departmental assemblies. All these officials are elected simultaneously for a four-year term, which does not coincide with the national elections for the president and Congress. While municipal councilors and departmental deputies can be continuously re-elected, mayors and governors cannot run for an immediate second term. Moreover, governors and mayors, as subnational government leaders, are politically autonomous and thus run for office with their own government platforms. Although the three levels of government collaborate in the implementation of policies and utilize various earmarked and discretionary transfer systems to facilitate cooperation, coordination remains a challenge and is frequently influenced by political affiliation. Efforts have been made in recent decades to increase horizontal cooperation through associative schemes among subnational governments (e.g., metropolitan areas, provinces, associations of municipalities, and planning regions). This has bestowed a new breed of arrangements that are still in the experimental stage and lack organizational and institutional capacity (Bello-Gomez & Avellaneda, 2022; Leyva et al., 2020). From a fiscal perspective, both departamentos and municipalities rely heavily on transfers from the national government (accounting for approximately 48% of their total revenue). The Sistema General de Participaciones (General Participations System, SGP) allocates these transfers to subnational governments, and most resources are earmarked for education, health care, and basic sanitation (Ley 715, 2001). On average, both government levels obtain about 30% of their revenue from their own tax collection. However, this varies significantly between larger and smaller municipalities and departmentos, because smaller units depend almost exclusively on transfers. Departamentos collect taxes on alcohol, tobacco, and contract registrations, while municipalities collect several taxes, among which property tax and business registration tax (“industry and trade”) contribute the largest amounts. The 1991 constitution gave municipalities a key and homogeneous role in policy implementation and service provision across a wide range of policy areas. However, differences in scale and capacity among municipalities are very large, often leading to serious implementation gaps in smaller and weaker municipalities. To understand these differences, we draw on the municipal typology created by Law 617 in 2000. This bill classified all Colombian municipalities into seven categories, starting with a “special” category for the largest municipalities and then six numbered categories (1 to 6) in decreasing terms of population and budget. Table 7.1 illustrates that 50% of Colombians live in large or very large cities (categories Special and 1, respectively). In addition to the five large cities (Bogotá, Medellín, Cali, Barranquilla, and Cartagena) with more than one million inhabitants, 57 municipalities have more than 100,000 people. This portrays a country that is essentially urban while avoiding the usual population

Unbalanced multilevel governance in Colombia  91 Table 7.1 Category

Colombian municipalities by category Number of

Average

Total

% of national

municipalities

population

population

population

Special

5

2.966.596

14.832.981

29,50%

1

27

369.668

9.981.046

19,85%

2

18

186.979

3.365.614

6,69%

3

19

84.350

1.602.654

3,19%

4

24

104.707

2.512.963

5,00%

5

39

53.729

2.095.436

4,17%

6 Total

970 1.105

16.383 45.627

15.891.059 50.281.753

31,60% 100%

Source:  Data taken from Contaduría General de la Nación and DANE (2022).

Table 7.2 Category Capital District

Colombian departamentos by category No. of

Average

departamentos

population

Total population

N/A

7.743.955

7.743.955

(Not a departamento) Special

3

4.817.694

14.453.081

1

6

1.852.964

11.117.786

2

5

1.409.141

7.045.705

3

8

882.947

7.063.578

4

10

294.832

2.948.319

Grand Total

32

 

50.372.424

Source:  Own calculations, data taken from Contaduría General de la Nación and DANE (2022).

concentration in the capital city exhibited by other Latin American countries (e.g., Peru and Argentina). However, many municipalities have a small population. Ninety-one percent of all municipalities (1,009 of 1,105), with an average population of only 17,825 inhabitants, correspond to the two smallest categories and represent almost 36% of Colombia. Moreover, according to the Mission for Rural Transformation (Misión para la Transformación del Campo), 691 municipalities can be considered rural (with most people dispersed in the countryside), while 318 were also isolated from urban centers (Ocampo, 2014). These constitute the Colombian periphery: small, rural, and isolated municipalities that face the greatest challenges to state capacity and policy implementation. According to the OECD, Colombia is one of the countries with the highest Gini index of territorial disparity (Blöchliger & Kim, 2016). This implies a very serious failure of the current institutional design of Colombia’s decentralization to bring about a minimum standardization in the quality and quantity of the provision of public goods in different regions. Departamentos, the intermediate level of government, are also classified by their population and fiscal capacity according to Law 617 of 2000. The largest departamentos mostly overlapped with the larger municipalities. This leaves approximately 10 million people living in rural and rural/isolated municipalities operating in territories where the middle-level government also has little capacity and resources. Moreover, it is also contradictory that all departamentos have the same functions and budget sources, as large variations exist in terms of the number of municipalities that they support, for example, Antioquia, Boyacá, and

92  Handbook on subnational governments and governance Cundinamarca have all over 100 municipalities, whereas Vaupés, Amazonas, and Guainía (all three in the Amazon region), have fewer than three municipalities, although in a very large area with scarce population.

7.3

THE EVOLUTION OF COLOMBIA’S MODEL OF DECENTRALIZATION

The Colombian decentralization process has taken more than 40 years. It is one of the most advanced devolution initiatives in Latin America, even when compared to federal countries in the region, as different studies have argued (Konrad Adenauer Stiftung, 2010; Ladner et al., 2021; OECD, 2016, 2019). In comparative terms, in 2016 Colombia was five percentage points above the OECD country average of subnational spending (approximately 35% vs. 30%) and 20 percentage points above the average of subnational spending of centralized countries such as Ecuador, Chile, and Paraguay (35% vs. 15%) (Blöchliger & Kim, 2016). Moreover, if one considers other regional governments’ income sources not included in national budgets, such as royalties of oil/mineral production and local taxes, departmental investment levels could reach up to 60% of the budget (DNP, 2016). A recent study by Ladner et al. (2021) showed Colombia (Sanabria-Pulido, 2021) as one of the only non-European countries with higher levels of local autonomy at the municipal level within the OECD. Colombia moved from transferring 13% of its national revenues to local governments in the late 1970s to devolving 50% of its budget in 2001 (Acosta & Bird, 2005). In less than three decades, a highly centralized country has made a relatively rapid transition to greater levels of devolution. As Acosta and Bird (2005, p. 4) suggested: “Colombia is not a federal country, but few countries in the world have changed from being essentially centralized to being largely decentralized in fiscal terms as rapidly as Colombia did in the latter third of the 20th century.” The following paragraphs provide a historic overview and characterization of decentralization in Colombia. 7.3.1

Socio-Economic Overview of 20th-Century Local Governance in Colombia

A highly centralist constitution enacted in 1886 ruled Colombia for over a century. The 1886 constitution proclaimed a minimal role for the state and a central role for the Catholic Church in providing social goods and services such as health and education. The entrenched centralism and insufficient capacity for policy implementation made the central Colombian state absent across most of the periphery. In turn, this led to the advent of several institutional threats from illegal actors leading to upsurging violence, a long-lasting internal conflict with guerrilla and paramilitary groups, and one of the highest levels of inequality and poverty in Latin America.1 For most of the 20th century, Colombia was a rural country with a minimal national state. For example, the national revenues of the state represented a mere 6% of GDP in the 1950s (Kalmanovitz, 2001). To address this, between 1958 and 1986, several administrative reforms aimed at creating national public organizations to expand social policies and solve problems of fragmentation and backwardness (Sanabria & Leyva, 2023). The creation of more than 40 national agencies, ranging from constructing national schools to providing urban water services, has improved service provision across different policy areas. However, severe administrative pathologies such as patronage, clientelism, and low performance remained (Sanabria, forthcoming; Duarte, 2003)

Unbalanced multilevel governance in Colombia  93 Simultaneously, after the 1960s, the country’s urbanization rapidly advanced, moving from 50% in 1960 to 70% in the mid-1980s, while the population doubled from 15 to 30 million inhabitants in the same period. These combined changes implied that the urban population tripled in just 25 years (1960–1985), creating massive demand for urban services. The lack of state capacity created civil unrest in the 1970s (Falleti, 2006) and facilitated increasing levels of violence. 7.3.2

Implementing Decentralization

Local reform and decentralization gained prominence in the public agenda from the mid-1970s onwards, with two different sources of motivation. Politico-administrative reforms occurred in the 1980s and the 1990s. They aimed for a long-term structural transformation of the country and tried to tune the institutional design of the state to the intense demands of the new socio-demographic realities. However, fiscal reforms were heavily influenced by fiscal federalism and New Public Management practices (Sanabria-Pulido & Leyva, 2022). This emphasis entailed the layoff of several national bureaucracies (created only a few decades earlier) and the devolution of some functions and competencies to subnational units. Furthermore, fiscal stability was a source of inspiration for decentralization reforms (Franco & Cristancho, 2012; Bonet, 2013; Leyva et al., 2021) because of the role of the epistemic community of economists, which has been vital in shaping policy ideas and capacities in the country (Sanabria-Pulido, Rubaii & Guzman, 2020). The 1991 constitution represents the zenith of the reformist movement, which pretended to create a new decentralized administrative regime (Gonzalez & Otero, 2010; Leyva, 2012; Sanabria, 2019) while maintaining an excellent macroeconomic outlook. The new constitution set decentralization as its spearhead to reform the state, attempting to close the gap between citizens and the state to improve democracy, citizen participation, and the quality of public policies. At the political level, a previous reform allowed the election of municipal mayors starting in 1988, while the constitution provided for the election of departamento governors starting in 1992. Before this, governors and mayors acted merely as agents of the central government, given that the president of Colombia appointed governors and these, in turn, appointed their respective mayors. The institutional design of the 1991 constitution installed a hybrid model that combined some aspects of federal systems with others that still gave some leverage to the central state, especially in financial matters (Covilla & Sanabria-Pulido, 2021). To do so, the national government retained the bulk of the tax collection while creating two systems of large automatic earmarked transfers and one more for match-funding and co-financing under the principle of competitive tendering among municipalities. These reforms strengthened the transfer system, diminished disposable investment funds at the national level, and assigned most of the social policy implementation to the subnational authorities. The stark moves towards a deep municipal decentralization model has left the intermediate level of government (the departamentos) without a clear role within the IGR scheme, particularly in policy implementation. Thus, municipalities became net winners of autonomy and the national government’s devolution after the 1991 constitution (Sanabria, 2019; Zapata Cortés, 2014). Eventually, the reforms reduced national state capacity in the implementation process, bestowing greater prominence on other players such as markets, private providers, and/or subnational governments. These politico-administrative and fiscal reforms created a decentralized system that

94  Handbook on subnational governments and governance secured budgetary stability and local political governability. Nonetheless, the outcome of devolution is that the sub-national level is still fragile regarding administrative capacities. The Colombian type of decentralization is functional to the national elites and local political patrons because it decentralizes decision-making in allocating essential resources while maintaining tight fiscal control of budgets and national debt. However, it creates a silent lack of administrative apparatus at the subnational level to ensure homogeneous organizational efficiency and the quality of public services across the nation. Indeed, it is a type of decentralization that has failed to elicit greater convergence in the quality of services in Colombian municipalities (Blöchliger & Kim, 2016). We contend that this decentralization process failed to recognize the heterogeneity among subnational public administrations. The experience of a Colombian citizen with the public sector in the best-endowed urban areas differs significantly from those who live in poorer, smaller peripheries, or rural areas usually affected by violence and poverty. The Colombian case epitomizes how higher levels of autonomy can sometimes become a curse. This is particularly true for small municipalities that still lack the structure and resources to implement the many social programs the constitution assigned to them (Franco & Cristancho, 2012; Leyva, 2012; Sanabria-Pulido, 2015).

7.4

DEVOLUTION WITHOUT SUBNATIONAL PUBLIC ADMINISTRATION CAPACITY

Although sustained and effective in devolution, Colombian decentralization has failed to deliver homogeneous local government capacity across the territory. Different authors see decentralization as a vital process that has enhanced democracy in Colombia and has allowed a more comprehensive view of development (Barberena, 2010; Ceballos & Hoyos, 2002; Falleti, 2006). However, several studies indicate that the results of decentralization in the country are still limited (Bonet, 2006; Leyva, 2012; Maldonado, 2011; Ramírez et al., 2016; Sanabria, 2019; Zapata et al., 2001; Zapata, 2010). More importantly, tensions in IGR continued. In this section, we show how the devolution process was not accompanied by the creation of a national apparatus that could boost local capacity building (using Sellers & Lidström, 2007) and compensate for territorial differences. The fiscal emphasis on reforms neglected critical aspects of administrative capacity that are instrumental in subnational government performance. Most reform efforts have shared the premise that the central goal of decentralization is to achieve financial efficiency rather than capacity building (Cadena, 2002; Barberena, 2010) and is instrumental to political or fiscal goals (Gutierrez, 2010). Thus, the Colombian case somehow avoided the “administrative question”, disregarding the capacity building of subnational governments. In fact, Colombia is still far from achieving a professional bureaucracy independent of political interference and clientelism, particularly at the subnational level (Langbein & Sanabria-Pulido, 2016). Thus, Colombian decentralization appears as a fragmented process rather than an integrated system designed to manage and coordinate economic, social, and political goals through solid subnational bureaucracies. The Colombian model sought to forcibly combine the objectives of orthodox economic management with the need to maintain political exchanges with regional political and clientelist elites. It is not surprising that the political side of the division eventually collided with the fiscal goals of controlling local spending and decision-making through strict monetary and

Unbalanced multilevel governance in Colombia  95 fiscal policy (Zapata Cortés, 2016; Bonet, 2006), demanding changes to the IGR model. The first decentralization problems arose at the end of the 1990s. Most provinces and municipalities were financially unsustainable, but instead of reflecting on the politico-administrative drivers that led to poor results for local governments, the public debate deviated towards budget restrictions and controls for the subnational units.2 7.4.1

Dismantling National Bureaucracies Without Reinforcing Subnational Capacity

The intense focus on Fiscal Federalism and New Public Management (Sanabria-Pulido & Leyva, 2022) implied that key reforms reduced the role of national bureaucracies in implementation without simultaneously enhancing subnational bureaucracies. As Leyva (2018) illustrated, more than 50 national entities were closed between 1993 and 2010 and their funds were added to the national budget. The primary rationale for these closures was to transfer personnel expenditures to unearmarked transfer programs and co-financing funds in sectors other than education, health, and sanitation. In the early 1990s, the idea was to create small bureaucracies at the national level to select proposals from among those presented by all municipalities. However, political pressure implied that by the late 1990s, most funds had become highly discretionary and subject to pork-barrel and clientelist practices (Leyva et al., 2021). The effects of this approach to reforming subnational government capacities become more apparent by observing public employment data. In 2014, the IDB mentioned that Colombia occupied the second-to-last position among the Latin American countries studied in the participation of public employment over total employment. However, public employment in Colombia is not very small. As part of NPM practices, the Colombian state relies on fixed-term contracts that have brought back political patronage and clientelism as the primary practices for allocating public sector jobs (Sanabria-Pulido et al., 2019). This erodes the capacity of local public administrations, which lack a robust cadre of merit-based career officials. In turn, local administrations are subject to a spoils system for political patrons who allocate public sector jobs to clientele with shallow technical capacity (Sanabria-Pulido, 2015). Moreover, in response to these reforms, the national government became a mere observer of local policy implementation in Colombia. Following the reforms (i.e., contracting out or downsizing) that dismantled direct intervention from central bureaucracies on local implementation, national ministries strategically sought programs with fewer management or implementation duties. Hence, they have gradually privileged direct transfers and subsidies to producers and citizens. By 2017, this implementation without bureaucracies represented “65 different programs that are equivalent to nine percent of the Gross Domestic Product (GDP) of the country” (Gonzalez, 2017, p. 1). In this context, the national government’s top managers detach from any responsibility beyond the allocation of these resources, thus undermining the oversight and accountability for these large amounts of public resources (Maldonado, 2012). 7.4.2

Mismatch Between Municipal Responsibilities and National Institutional Support

The decentralization process in Colombia devolved responsibilities but failed to create a straightforward institutional framework to deliver them. As mentioned before, Colombian decentralization reforms started in the mid-1980s with a political emphasis on adopting the

96  Handbook on subnational governments and governance direct election of local mayors. They then moved to fiscal goals but later failed to include administrative capacity aspects beyond the delegation of competencies from the national level to subnational governments. Indeed, although the 1991 constitution left a mandate for Congress to issue a law to regulate IGR and define competencies in non-regulated sectors, Congress only enacted the law in 2011. Subsequently, intergovernmental cooperation and collaboration never became part of the decentralization agenda until very recently, when the Ministry of the Interior and the National Planning Department took responsibility. Moreover, policy formulation in Colombia exhibits a top-down style (Covilla & Sanabria-Pulido, 2021; Barberena, 2010). In the formulation stage, the central government usually overlooks the implementation capacity of the local governments. Paradoxically, when policies reach the implementation stage, the national government has little support for subnational governments regarding how to run the programs (Barberena, 2010) or how to adjust to different levels of local government capacity. Aligned with fiscal federalism, the Colombian model assumed that the local level was better at gathering information about citizens’ preferences and that local citizens were more effective at overseeing the use of public resources. These ideas conceptualized IGR as a layer cake, following Wright’s (1997) metaphor. The citizenry and strongly engaged local civil society would play a paramount role. Hence, Colombia’s intergovernmental system avoids administrative intermediation and prioritizes autonomy over relations. However, as time has passed, delegation has failed in several municipalities that cannot absorb such responsibilities or lack a civil society structure to oversee local spending (Blöchliger & Kim, 2016). This creates a big opportunity for political intermediaries that occupy the vacuum left by the absence of administrators, thus resembling the clientelist effects that have occurred in many places around the world (Sujarwoto, 2017). The national government has tried to respond to these failures by creating several centralized “bureaucratic tools” for control, such as subnational indexes, rankings, guidelines, and annual reports. This increases the burden on subnational governments in the form of reports for the central government (Avellaneda and Bello-Gomez, 2020) while maintaining local implementation, thus worsening the already unbalanced load of responsibilities for local governments. Meanwhile, operational activities run with temporary, politicized personnel who cannot guarantee local capacity and affect the continuity of policy implementation (Sanabria-Pulido et al., 2019) because of the electoral cycle. The lack of subnational administrative capacity, together with increasing bargaining and lobbying to ensure funds for local implementation, has elicited patrimonialism, cronyism, and political patronage (Bonet, 2006; Maldonado, 2011; Barberena, 2010; Sanabria-Pulido & Leyva, 2022; Leyva et al., 2021).

7.5

OUTCOMES OF COLOMBIAN-STYLE DECENTRALIZATION

Weak administrative decentralization has impacted policy delivery in Colombia in different ways. First, it has worked to keep the gaps in the capacity of Colombian municipalities, thus producing a significant disparity in the quality and efficiency of public service delivery. For instance, according to a report the Superintendency of Household Public Utilities (Superintendencia de Servicios Publicos Domiciliarios, 2021), only 71% of Colombian municipalities are covered by water systems, and 63% have sewer systems. However, only 20% of

Unbalanced multilevel governance in Colombia  97 the municipalities had water coverage over 90% of their territories. Second, the absence of solid administrative capacities in municipal public administrations and loosely coupled IGR system loopholes have created pockets of clientelism in the less regulated sectors. Third, the lack of a supportive national (intergovernmental) level to accompany local implementation has led to administrative experimentation, with a tragic low level of learning and increasing improvisation. We now describe each of these outcomes in detail. 7.5.1

Divergence in Subnational Governance Quality

Weak administrative decentralization has broadened the gaps in governance quality at the subnational level in Colombia. According to OECD, “Colombia has one of the highest levels of territorial inequality in terms of GDP per capita, similar to that of the Slovak Republic, Chile and Mexico” (OECD, 2016, p. 5). This high inequality in the departamentos’ GDP highlights the need for convergence in Colombia’s decentralization. The reform process has not achieved the minimum acceptable standards for the subnational provision of public goods and services. Although a small group of high-capacity subnational units benefitted from the greater autonomy granted after the 1991 constitution, the inability of most subnational administrations to embrace their duties and effectively deliver public goods and services revealed gaps in policy effectiveness, miscoordination, and heterogeneity in policy outcomes. For example, although aggregate national figures have improved over time, the coverage of sanitation, sewage, and clean water provision differs significantly among municipalities (Ministerio de Vivienda, 2021). Thus, many areas of Colombia’s Caribbean, Pacific, Amazon, and Eastern Plains regions have a deficient supply of clean water and sanitation compared to large and medium Andean cities approaching 100% coverage, as seen in Figure 7.1. Colombia followed a decentralization process that did not consider heterogeneity in its institutional design. All municipalities, regardless of their size or capacity, had similar competencies. The laws that designed decentralization in the 1980s and the 1990s did not consider a specialized system of coordination and assistance for smaller and institutionally weaker municipalities. This resulted in substantial disparities among municipalities. On the one hand, decentralization reforms have allowed larger cities (with higher pre-existing capacities, strong academic supply, a solid private sector, and a more organized civil society) to improve their service quality and coverage directly (Cadena, 2002; Bonet, 2006; Porto et al., 2018; Zapata et al., 2001; Zapata, 2010). However, the country’s policy outcomes are usually poor beyond the main capital cities. Paradoxically, decentralization empowered political patrons in less advanced regions of the country. Entrenched political dynasties and robust clientelist systems erode the capacity of local public administrations through informal institutions that favor capture or rent extraction. 7.5.2

Clientelism in Deregulated Sectors

The fiscal design of decentralization in Colombia has allowed potholes in the multilevel governance system, creating pockets of clientelism in some deregulated sectors. Those sectors with less clear rules for the allocation and distribution of funds are coopted by clientelist politicians who act as brokers of the central government’s funds. Moreover, politicians do not encounter intense competition or restrictions from national bureaucrats, so they behave like they have a major say in allocation and local implementation decision-making.

98  Handbook on subnational governments and governance

Figure 7.1

Water and sewage coverage across Colombian municipalities (2016)

The formal rules that designed Colombia’s decentralization did not apply equally to all policy sectors. For example, the policy domains that take the bulk of the budget (e.g., health, education, infrastructure, and energy) received greater benefits of delegation and devolution (Maldonado, 2011). In contrast, in other policy sectors (infrastructure, cultural and sports facilities, public utilities, etc.), competencies were transferred to municipalities but were left unfunded. In these policy domains, local expenditure lies on the usually precarious local fiscal capacity (Sanabria, 2019) or, at best, on the co-financing role of the national government, generally assigned through bargaining or clientele practices (Valencia-Tello & De Chueiri, 2014; Leyva, 2012; Leyva et al., 2021). Hence, Colombia’s decentralization established tight rules for allocating funds in some sectors, but created a very informal form of intermediation for other sectors. These loopholes created pockets of clientelism in many policy areas without earmarking rules, allocation formulas, or bureaucracies capable of coordinating priorities. Thus, Congress members acted as mediators or brokers in allocating huge amounts of national funds using pork barrels and other forms of politicized transactions. Certainly, this politicization of decentralization was never the objective of decentralization reforms. However, this can be understood as an unintended consequence of managerialist economy-oriented reforms. Moreover, Legislative Act 01 of 2001, a constitutional amendment, allowed the national government to allocate more disposable funds freely without changing the local implementation emphasis. This endowed the president with greater space for transactional politics at the regional level. By 2005, these presidential pork-barrel programs, together with the significant funds of the royalty system, were much larger than the automatic SGP formulas (Leyva, 2012). This new unregulated decentralization was dominated by over-empowered regional politicians, especially members of Congress. Both President Alvaro Uribe (2002–2010) and

Unbalanced multilevel governance in Colombia  99 President Juan Manuel Santos (2010–2018) developed their own mechanisms to leverage this pork barrel in their favor (Leyva, 2012; Leyva et al., 2021). For example, During Uribe’s eight years as president, he chaired 306 Consejos Comunales (Community Councils), which were public meetings developed throughout the country. In these meetings local officials, politicians, and community leaders would be invited to prioritize activities and investments of the central government in each region, city, or department. These “councils” were televised every Saturday and became the focus of national attention (Leyva, 2012). Regarding Santos’ eight years of government, he changed the style of discretionary pork-barrel politics, creating a new tool called Cupos Indicativos (Indicative Quotas), which assigned regional investment quotas for congress persons in his coalition. This distribution was highly political (non-technical) and less visible, although some academic works have analyzed the available information showing that the regions with more congress members were prioritized (see Leyva et al., 2021). Although some authors have labeled this increasing direct investment of the national government in the regions as a process of “recentralization” (Zapata Cortés, 2016; Valencia-Tello & De Chueiri, 2014; López-Murcia, 2022), we differ from that view. Rather than recentralization, we believe that this only confirms the Weak Administrative Decentralization approach, where increasing politicization compensates for the absence of a local government’s national infrastructure (Sellers & Lidström, 2007). After 2002, these reforms did not reinstate the central functions of the national state or challenge the political and administrative pillars of the model of Weak Administrative Decentralization. Instead, they positioned the president as a figure with more tools to engage in transactions with powerful regional actors and politicians (Leyva, 2012; Leyva et al., 2021). Hence, rather than recentralizing, as understood in public management (i.e., devolving the function back to central bureaucracies), it only implied that the president had developed increasing discretion to deal with local elites without the restrictions created in regulated sectors (education, health, and sanitation sectors). In addition, these new arrangements have direct performance implications. The national government cannot ensure that transfers through automatic formulas and royalties are effectively spent (Díaz et al., 2017). Thus, the central government’s role in decentralization is limited to the “reception of reports, rather than establishing courses of action and feedback mechanisms about a strategy” (Díaz et al., 2017, p. 127). Hence, the Colombian decentralization model has ended up working as a top-down system for policy formulation and resource allocation with a loosely coupled system for implementation. This latter responsibility is left on the shoulders of weaker local public administrations. Given that local authorities must develop their administrative and decision-making capabilities through their development plans, the result is a very high rate of organizational experimentation and improvisation at the local level. This has both positive and negative effects. The most capable municipalities, often the largest ones, can conduct proper innovations and experimentation at the local level. For instance, Bogotá and Medellín (the two largest cities) have developed highly innovative policies for urban transportation that have reached worldwide recognition. On the contrary, many other small cities and towns improvise and have a minimal capacity to respond to the needs of their citizens. This contributes to the already low levels of trust in the country’s government, which are among the lowest in the world (Sanabria-Pulido & Bello-Gomez, 2020). Hence, the decentralization model leads to a vicious circle in which the lack of local public administration capacity impedes most subnational units from improving the quality of their public service.

100  Handbook on subnational governments and governance

7.6

ADDRESSING WEAK ADMINISTRATIVE DECENTRALIZATION

Despite the omissions of the decentralization model that emerged after 2001, few experiments have been conducted to improve subnational governance in Colombia. Although they need to be more robust to challenge the administrative weaknesses described here, they provide valuable lessons that could put the reform trajectory on the right path. The first experiment was the creation of the mechanism of the Contratos Plan at the beginning of the Santos government in 2011. This mechanism attempted to define long-term (non-discretionary) policy priorities for regional spending to reset IGR. Although well-intended, these funds (attached to “pacts” or contracts listing priorities) were poorly implemented at the local level due to lack of capacity. Furthermore, as has traditionally occurred in Colombia, they became coopted by local political barons. Another experiment of Santos’ administration that emerged as part of the peace process with the FARC guerrilla group (2012–2016) was the PDETs (Development Programs with Territorial Focus). By the end of Santos’ tenure, these local participatory plans had been implemented in 2018 through the newly created Agency of Territorial Renewal (ART, Agencia de Renovación Territorial). In their formulation, this agency targeted 170 municipalities that were affected more by armed conflict and poverty (ART, 2022). More than 200,000 people have constructed 16 action plans, covering 36% of the country’s area and about 6.6 million Colombians (ART, 2022). These plans served as the basis to implement the PDETS during President Duque’s government, developing many small and middle scale investments in the poorer and more conflict affected regions of Colombia, while at the same time bypassing municipalities and politicians altogether, undertaking a model of direct implementation by the central government in these localities. The creation of these new (peace-related) agencies broke with predominant path dependence in subnational governance. As a result of the peace agreement, Santos’ government created three agencies to return to the national government at the local level. Although this is not a place to review the performance of these agencies, they could represent the start of a new institutional path for decentralization. These agencies were inspired by the much more active role of the administrative state in the IGR. Thus, they aim to go beyond the limits of fragmentation that had previously helped politicize decentralization. In terms of rural cadasters, formalization of rural property, and promotion of rural development, the central government now has valuable management capacities that help to coordinate and reduce territorial differences, at least on paper. For the time being, Colombian academics and authorities must evaluate the impact of these innovations to gauge if they represent a different future for decentralization reforms in Colombia. Another interesting area of experimentation in Colombia is horizontal or interjurisdictional cooperation/collaboration. This new legal framework has created or reinforced several territorial associative schemes between municipalities and departamentos. Some of these schemes, such as metropolitan areas, have existed in Colombia since the early 1980s (Leyva et al., 2021). However, other figures, such as provinces (association of small municipalities) and regions (associations of departamentos), were entirely new. In the last 10 years, a great deal of experimentation has emerged, and more than 81 associative schemes have been created, implying that 57% of the 1,105 municipalities belong to a formal scheme (DNP, 2020).

Unbalanced multilevel governance in Colombia  101 At first sight, the results of horizontal intergovernmental relations could appear outstanding, judging on the creation of these new figures and schemes. However, after closer analysis, it can be concluded that the national government has largely mismanaged in this field. First, the Asociaciones de Municipios (municipal associations), the most common type of horizontal scheme is often used to evade contracting out rules and oversight, and strong incentives exist to avoid vesting them with sufficient capacity for implementation (Bello-Gomez & Avellaneda, 2022). Second, there is no clear strategy for which tool is suitable for each type of municipality. Moreover, there are no clear recommendations, let alone a strategy, for the most prominent cities or smallest municipalities regarding the course of action (Leyva et al., 2020). Third, the creation of these schemes results from local initiatives with no national financing (or national intergovernmental bureaucracies), since all the money from automatic transfers and royalties is still exclusively linked to municipalities and departamentos. Consequently, most of these experiments tend to fail because of misguided projects without an apparent impact. These problems have become more salient in recent years. The Mission for the System of Cities (DNP, 2014) highlighted that Colombian municipalities are highly fragmented and lack horizontal and vertical cooperation owing to the poor articulation of national objectives. In addition, the weakness of the institutional architecture for coordination at the national level, and the problems with subnational public finances, make the quality of IGR in Colombia even more precarious. This means that in Colombia, as in other parts of the world, localization without coordination leads to the loss of economies of scale, lack of direction, and politicization (Prud’homme, 1995; Blöchliger & Kim, 2016). Finally, the last experiment in the 2010s was the reform of the royalty system. In 2011, the Santos government distributed oil and mining royalties to more municipalities, not only those where deposits, pipes, or drills are located. This reform also created a multilevel IGR mechanism called the OCADs (Collegiate Organs of Administration and Decision). This mechanism attempted to break with the logic of fiscal federalism since it implied that national delegates (usually from the National Planning Department – DNP) had to travel across Colombia to approve plans and investments. However, as mentioned, this system was never accompanied by the expansion of national intergovernmental bureaucracies. Therefore, these delegations allocated ad-hoc (informal) functions to officials in charge of other responsibilities in the DNP. This informality created a significant lack of capacity for oversight and clogged the approval of investments. The “sluggishness” led to a new reform in 2021 that aimed to relax procedures and protocols, returning to the harmful idea of distribution without mediation. This return to the past illustrates the stickiness of the design of political and fiscal decentralization with weak administrative capacities. Nonetheless, greater reliance on interjurisdictional collaboration and cooperation during the last decade could be the first sign of the emergence of a new model for intergovernmental relations based on new tools for building more robust administrative capacities at the subnational level. Decentralization reform does not have to be a zero-sum game in which the competencies and power that the national government devolves must be packed in the same form and size to all local governments. This implies that Colombia should experiment more with arrangements of asymmetric decentralization (Blöchliger & Kim, 2016). In addition, following Sellers and Lidström (2007, p. 612), Colombia should consider further strengthening its “nationalized infrastructure of local government”, a path that seems to have started with the creation of the peace-related national agencies. Also, Colombia could study the possibility of improving

102  Handbook on subnational governments and governance the administrative capacity of subnational governments such as departments and horizontal schemes, these need more funds and competencies. Such a structure can boost the central level to become more instrumental in creating convergence in local institutional capacity and reducing heterogeneity in subnational public administrations.

7.7

CONCLUDING REMARKS

Colombia exemplifies one of the most ambitious decentralization projects in Latin America. Its rapid implementation, and the scope of the relatively sophisticated institutional designs proposed just four decades ago, reveal a hybrid, unitary-decentralized model that is innovative from an international perspective. The firm adoption of decentralization as a vital component of the policy agenda in Colombia represents a clear advancement from the previous highly centralized scheme of intergovernmental relations. Before the 1991 constitution, departamentos and municipalities coexisted in a rigid and hierarchical structure that did not facilitate the effective presence of the state in a large territory nor adequate policy implementation. The reforms intended to induce fiscal decentralization encourage sound management of subnational public finances. However, these results remain ambiguous. On the one hand, the emphasis on fiscal and budgetary aspects was consistent with the country’s tradition of orthodox economic policy, but ignored key elements of subnational government capacity. On the other hand, the new model was intended to respond to the needs of regional political elites, creating a counterforce for fiscal goals. The result is that more than mere political or fiscal decentralization, Colombia has made a type of decentralization that we label as Weak Administrative Decentralization. The problem with this type of decentralization is that, even though it could temporarily enhance political and economic strategies, it produces poor heterogeneous policy results. This arrangement, with reduced decision making and obscure political transactions, has affected the levels of public expenditure, reduced subnational administrative capacity, and limited policy coordination. It creates a vicious circle of stringent reforms that lessen the discretion of subnational units but allows more political power to the presidency and national government. When the national government wants to move forward with its legislative initiatives, it must bargain and offer benefits to political barons and regional elites who expect to increase their budget allocations. The Colombian decentralization model is a top-down system for policy formulation and allocation of funds combined with a loosely coupled system of IGR for implementation, which is left on the shoulders of weaker local public administrations. Almost four decades later, decentralization selectively benefited the most advanced regions and municipalities, those with more significant social capital and institutional capacity, and stronger civil societies and private sectors. Meanwhile, it has left behind municipalities and regions with lower public administration capacity and higher levels of politicization. Therefore, while the overall indicators of service provision across different areas have improved, there is no convergence in policy outputs among subnational units. The 1991 constitution positioned municipalities as the basis for Colombia’s politico-administrative apparatus. However, most lack the skills and resources to deal with their more significant levels of autonomy and responsibility. The weakness of a meso-level bureaucratic apparatus (both in the national government and in departamentos) to manage relations between the national and subnational levels has created

Unbalanced multilevel governance in Colombia  103 a particular system in which the national level allocates resources and defines broad lines, but is not involved in implementation details or capacity improvement. Instead, this task is left to departamentos and municipalities. Most of them hardly have the resources or capacity to achieve the national objectives of public policy. Subnational governments often fail to provide essential public goods and services, thus affecting their well-being and quality of life. Furthermore, many territories have become fertile grounds for entrenched political patronage and clientelist practices, which deviate from creating public value at the local level. Colombia has advanced a model that privileges fiscal and political goals but disregards the need to develop a robust, professional, politically independent system of local public administrations to nurture governance. Further institutional adjustments, such as those that have started in the last decade, may help correct the course by providing clear channels for national-subnational mediation. However, these adjustments require consistency and sufficient political support to effectively aid subnational capacity building. The Colombian case illustrates how the law can normatively define decentralization de jure. However, only practical institutional and administrative capacities, particularly at the intermediate and local levels, can ensure the proper performance of decentralization reforms in the long term.

NOTES 1. Although Colombia’s Gini index reduced from 58.7 in 2000 to 54.2 in 2020 (according to World Bank indicators), it remains one of the most unequal countries in the hemisphere. 2. For instance, in 2001, the Legislative Act 01 of 2001 amended the constitution to slow down the growth of intergovernmental transfers. Although transfers did not decrease in absolute terms, their share of the national budget declined from 50% to less than 35% (Blöchliger & Kim, 2016).

REFERENCES Acosta, O. L., & Bird, R. (2005). The dilemma of decentralization in Colombia. ITP Paper 0404. International Tax Program, University of Toronto. ART. (2022). PDET en Cifras. https://​www​.​renovacion​territorio​.gov​.co/​especiales/​especial​_PDET/​ (Accessed on 11/03/2022). Avellaneda, C.N., & Bello-Gomez, R.A. (2020). Policy analysis for decision making in Colombian local governments. In Sanabria, P. and Rubaii, N. (Eds). Policy analysis in Colombia. Bristol: Policy Press, University of Bristol Press. Barberena, V. (2010). Las preguntas sin respuesta de la descentralización: La encrucijada y los nuevos caminos. 25 años de la descentralización en Colombia, 55–88. Konrad Adenauer Stifttung. Behnke, N. (2019). How bureaucratic networks make intergovernmental relations work: A mechanism perspective. In Behnke, N., Broschek, J., & Sonnicksen, J. (Eds). Configurations, dynamics, and mechanisms of multilevel governance (pp. 41–59). Cham: Palgrave Macmillan. Bello‐Gomez, R. A. (2020). Interacting capacities: The indirect national contribution to subnational service provision. Public Administration Review, 80(6), 1011–1023. Bello-Gomez, R. A., & Avellaneda, C. N. (2022). Mayoral preferences for delegation in collaborative arrangements: Issue salience and policy specificity. Public Management Review, 24(7), 1048–1074. Bello-Gomez, R., & Sanabria-Pulido, P. (2021). The costs and benefits of duality: Colombia’s decentralization and the response to the COVID-19 pandemic. Brazilian Journal of Public Administration, 55(1), 165–179. Blöchliger, H., & J. Kim (Eds.) (2016). Fiscal Federalism 2016: Making Decentralisation Work. OECD Publishing, https://​doi​.org/​10​.1787/​9789264254053​-en.

104  Handbook on subnational governments and governance Bonet, J. (2006). Fiscal decentralization and regional income disparities: Evidence from the Colombian experience. The Annals of Regional Science, 40, 661–676. Bonet, J. (2013). Descentralización fiscal y disparidades en el ingreso regional: la experiencia colombiana. Documentos de Trabajo sobre Economía Regional. Banco de la República Centro de Estudios Económicos Regionales (CEER). Cadena, X. (2002). ¿La descentralización empereza? Efecto de las transferencias sobre los ingresos tributarios municipales en Colombia. Revista Desarrollo y Sociedad, (50), 67–108. Ceballos, M., & Hoyos, D. (2002). El impacto de la descentralización en Colombia: aproximación a la democracia y al desempeño gubernamental en el nivel local, 1988-2000. Informe final del concurso: Fragmentación social y crisis política e institucional en América Latina y el Caribe. Covilla, J., & Sanabria-Pulido, P. (2021). Esquema híbrido de relaciones intergubernamentales para responder a la pandemia en Colombia. In Nader, E. & Fuchs, M. (Eds.) Covid-19 y Estados en acción: Un estudio constitucional comparado entre países federales y no federales (pp. 211–243). Konrad-Adenauer Stiftung. Díaz, E., Moreno, O., & Ruiz, C. (2017). Efecto redistributivo del Sistema General de Participaciones. Bogotá: Contraloría General de la República. DNP. (2014). Misión Sistema de Ciudades: Una Política Nacional Para El Sistema De Ciudades Colombiano Con Visión A Largo Plazo. Departamento Nacional de Planeación, Bogotá. DNP. (2016). El 60% de la inversión pública se ejecuta en municipios y departamentos. https://​www​ .dnp​.gov​.co/​Paginas/​El​-60​-de​-la​-inversi​%C3​%B3n​-p​%C3​%BAblica​-se​-ejecuta​-en​-municipios​-y​ -departamentos​.aspx DNP. (2020). Reflexiones sobre Ordenamiento y Desarrollo Territorial en Colombia. Bogotá. https://​ colaboracion​.dnp​.gov​.co/​CDT/​Prensa/​Reflexiones​-sobre​-Ordenamiento​-y​-Desarrollo​-territorial​-en​ -Colombia​.pdf Duarte, J. (2003). Educación pública y clientelismo en Colombia. Medellín: Universidad de Antioquia. ECLAC. (2006). Tributación en América Latina: En busca de una nueva agenda de reformas. Santiago de Chile: Naciones Unidas. Englebert, P., & Mungongo, E. (2016). Misguided and misdiagnosed: The failure of decentralization reforms in DR Congo. African Studies Review, 59(1), 5–32. Falleti, T. G. (2006). Una teoría secuencial de la descentralización: Argentina y Colombia en perspectiva comparada. Desarrollo Económico, 46(183), 317–352. Falleti, T. (2010). Decentralization and subnational politics in Latin America. Cambridge: Cambridge University Press. Franco, M. H., & Cristancho F. (2012). El federalismo fiscal y el proceso de descentralización fiscal en Colombia. Estudios de Derecho, 69(154), 235–262. Gonzalez, F., & Otero, S. (2010). La presencia diferenciada del Estado: Un desafío a los conceptos de gobernabilidad y gobernanza. In Launay-Gama, C., & González González, F.E. (Eds). Gobernanza y conflicto en Colombia: interacción entre gobernantes y gobernados en un contexto violento (pp. 28–36). Pontificia Universidad Javeriana, Bogotá. Cinep – Irg. Gonzalez, J. (2017). Los subsidios sociales en Colombia: ¿dónde está el problema?: In Razón Pública, 20 Agosto 2017, https://​www​.razonpublica​.com/​index​.php/​economia​-y​-sociedad/​10481​-los​-subsidios​ -sociales​-en​-colombia​-d​%C3​%B3nde​-est​%C3​%A1​-el​-problema​.html (Accessed on 20/12/2017). Gutierrez, F. (2010). Instituciones y Territorio: La descentralización en Colombia. In Konrad Adenauer Stiftung (Ed.) 25 años de la Descentralización en Colombia. Bogotá D.C.: Konrad Adenauer Stiftung. Harguindéguy, J. B. P., Cole, A., & Pasquier, R. (2021). The variety of decentralization indexes: A review of the literature. Regional & Federal Studies, 31(2), 185–208. Kalmanovitz, S. (2001). Las instituciones y el desarrollo económico en Colombia. Cali: Editorial Norma. Konrad Adenauer Stiftung. (2010). 25 años de la Descentralización en Colombia. Bogotá D.C.: Konrad Adenauer Stiftung. Ladner, A., Keuffer, N., & Bastianen, A. (2021). Self-rule index for local authorities in the EU, Council of Europe and OECD countries, 1990–2020. European Commission Directorate-General for Regional and Urban Policy. Langbein, L., & Sanabria, P. (2013). The shape of corruption: Colombia as a case study. Journal of Development Studies, 49(11), 1500–1513.

Unbalanced multilevel governance in Colombia  105 Leyva, S. (2011). Hacia un nuevo debate sobre la descentralización en Colombia: el análisis intergubernamental desde una lectura institucional. Revista CS, 8(julio–diciembre), 211–243. Leyva, S. (2012). Las relaciones intergubernamentales en Colombia (2002–2010): Un análisis de los consejos comunales de gobierno. Análisis político, 25(76), 119–138. Leyva, S. (2018). Un paso adelante y medio atrás: el cambio del Estado en Colombia desde la perspectiva de la administración pública (1957-2017). El estado del Estado. Trayectorias y desafíos de la historia de la administración pública en Colombia. Colombia: Departamento Administrativo de la Función Pública. Leyva, S., Mejía-Betancur, C., & Antonio Fortou, J. (2021). Más allá del clientelismo y la técnica: La distribución política del presupuesto gubernamental en Colombia. CS, (35), 125–153. Leyva, S., Sanabria-Pulido, P., & Rodríguez-Caporalli, E. (2020). Metropolitan governance and policy analysis in Colombia. In Sanabria-Pulido, P., & Rubaii, N. (Eds.), Policy Analysis in Colombia. Bristol, 2020; online edn, Policy Press Scholarship Online, 20 May 2021, https://​doi​.org/​10​.1332/​ policypress/​9781447347712​.003​.0008 (Accessed on 12/11/2023). López-Murcia, J. D. (2022). Recentralisation in Colombia. Palgrave-Macmillan. Maldonado, A. M. (2011). Descentralización territorial en Colombia: Situación y perspectivas de política. Friedrich-Ebert-Stiftung en Colombia. Maldonado, A. (2012). Descentralización territorial: sin suficiente control de resultados. In Razón Pública, Febrero 20. https://​razonpublica​.com/​descentralizacion​-territorial​-sin​-suficiente​-control​-de​ -resultados/​. Mazzuca, S., & Robinson, J. A. (2009). Political conflict and power sharing in the origins of modern Colombia. Hispanic American Historical Review, 89(2), 285–321. Ministerio de Hacienda. (2016). Anexo al mensaje presidencial proyecto de presupuesto general de la nacion 2017. Bogotá: Ministerio de Hacienda. http://​www​.minhacienda​.gov​.co/​HomeMinhacienda/​ ShowProperty​?nodeId​=​%2FOCS​%2FP​_MHCP​_WCC​-047577​%2F​%2FidcPrimaryFile​&​revision​=​ latestreleased (Accessed on 20/12/2017). Ministerio de Vivienda. (2021). Plan nacional de abastecimiento de agua potable y saneamiento básico rural. Bogotá. https://​minvivienda​.gov​.co/​sites/​default/​files/​2021​-03/​9​.​-plan​-nacional​-sasbr​-vf​.pdf Montecinos, Egon. (2005). Los estudios de descentralización en América Latina: Una revisión sobre el estado actual de la temática. Eure-revista Latinoamericana De Estudios Urbano Regionales, 31(93), 73–88. Ocampo, J.A. (2014). Misión para la Transformación del Campo - Saldar la Deuda Histórica con el Campo: Marco Conceptual de la Misión para la Transformación del Campo. Departamento Nacional de Planeación (DNP), Bogotá. OECD (2016). Making the most of public investment in Colombia: Working effectively across levels of government. OECD Multi-level Governance Studies, OECD Publishing, Paris, https://​doi​.org/​10​ .1787/​9789264265288​-en. OCDE. (2019). Making decentralisation work: A handbook for policy-makers. OECD Publishing. Pollitt, C., & Bouckaert, G. (2017). Public management reform: A comparative analysis-into the age of austerity. Oxford University Press. Porto, A., Pineda Mannheim, C., & Eguino, H. (2018). Descentralización y autonomía fiscal subnacional en América Latina: Panorama comparado de Brasil, Colombia, México y Perú. Banco Interamericano de Desarrollo, Report number: IDB-DP-557. Prud’Homme, R. (1995). The dangers of decentralization. The World Bank Research Observer, 10(2), 201–220. Ramirez de la Cruz, E. E., Grin, E. J., Sanabria‐Pulido, P., Cravacuore, D., & Orellana, A. (2020). The transaction costs of government responses to the COVID‐19 emergency in Latin America. Public Administration Review, 80(4), 683–695. Ramírez, J. M., Bedoya, J. G., & Díaz, Y. (2016). Geografía económica, descentralización y pobreza multidimensional en Colombia. Cuadernos de Fedesarrollo, 54, 1–112. https://​ www​ .repository​ .fedesarrollo​.org​.co/​bitstream/​handle/​11445/​2894/​CDF​_No​_54​_Febrero​_2016​.pdf​?sequence​=​4​&​ isAllowed​=​y Sanabria, P. (2019). Las Capacidades Institucionales de los Municipios Colombianos. In Grin, E, Carrera-Hernández, A. & Abrucio, F. (Eds.) Capacidades estatales en gobiernos locales

106  Handbook on subnational governments and governance Iberoamericanos: Actualidad, brechas y perspectivas. Sao Paulo: Editora FGV, Fundação Getulio Vargas. Sanabria, P. (forthcoming). Modernización de la gestión pública en Colombia: coyunturas críticas y dependencia del sendero en un proceso no lineal. In Sanabria, P. & Leyva S. (Eds.) El estado del estado. Bogotá: Ediciones Uniandes/Editorial EAFIT/Departamento Administrativo de la Función Pública. Sanabria, P. & Leyva, S. (2023). El estado del Estado: Trayectorias de modernización y reformas a la administración pública colombiana. Bogotá: Universidad de los Andes, Universidad EAFIT, Función Pública. Sanabria-Pulido, P. (Comp.). (2015). Gestión del talento humano en el sector público: Estado del arte, diagnóstico y recomendaciones para el caso Colombiano. Bogotá: Ediciones Uniandes. Sanabria-Pulido, P. (2021). Local Autonomy Index 2.0 (1990–2020): Colombia (CO). University of Lausanne. Sanabria-Pulido, P., & Bello-Gómez R.A. (2020). Public sector reform and perceptions of public servants: An international longitudinal review. In Sullivan H., Dickinson H., Henderson H. (Eds.) The Palgrave handbook of the public servant. Cham: Palgrave Macmillan. Sanabria-Pulido, P., & Leyva, S. (2022). A patchwork quilt of public administration models without early Weberianism? Public management reforms in Colombia since the 1980s. Public Management Review, DOI: 10.1080/14719037.2022.2054227. Sanabria-Pulido P., & Velasquez-Ospina M. (2021). Public administration, institutional capacity and internal conflict in Colombia: An intertwined relationship. In Nemec J., Reddy P.S. (Eds.) Public Administration in Conflict Affected Countries (pp. 347–368). Cham: Palgrave Macmillan. Sanabria, P., Rubaii, N., & Guzman, A. (2020). The policy analysis movement in Colombia. In Sanabria, P. & Rubaii, N. (Eds.) Policy analysis in Colombia. Bristol, UK: Policy Press, Bristol University Press. Sanabria Pulido, P., Gonzalez Arenas, M. A., & Becerra Camargo, O. R. (2019). ¿Cómo mejorar y racionalizar la contratación por prestación de servicios en el sector público en Colombia? Una mirada desde la calidad del empleo. Notas de Política 35. Escuela de Gobierno – Facultad de Economía Universidad de los Andes. Sellers, J. M., & Lidström, A. (2007). Decentralization, local government, and the welfare state. Governance, 20(4), 609–632. Sujarwoto, S. (2017). Why decentralization works and does not work? A systematic literature review. Journal of Public Administration Studies, 2(1), 1–10. http://​dx​.doi​.org/​10​.21776/​ub​.jpas​.2017​ .002​.01​.1 Superintendencia de Servicios Públicos Domiciliarios. (2021). Informe Nacional de Coberturas de los Servicios públicos de Acueducto, Alcantarillado y Aseo. Bogota DC. Valencia-Tello, D. C., & De Chueiri, V. K. (2014). Descentralización y re-centralización del poder en Colombia. La búsqueda de equilibrios entre la nación y las entidades territoriales. Díkaion, 23(1), 171–194. Wright, D. (1997). Para entender las relaciones intergubernamentales (Primera edición en Español). México: Fondo de Cultura Económica. Zapata, J. G. (2010). Las finanzas territoriales en Colombia. Documento de trabajo. Bogotá: Fedesarrollo. Zapata, J. G., Acosta, O. L., & Gonzalez, A. (2001). Evaluación de la descentralización municipal en Colombia: Se consolidó la sostenibilidad fiscal de los municipios colombianos durante los años noventa?: Documento elaborado por la Dirección de Desarrollo Territorial del DNP. República de Colombia, Departamento Nacional de Planeación, Dirección de Estudios Económicos. Zapata Cortés, O. L. (2014). La primacía municipalista en las relaciones entre niveles de gobierno en Colombia. RIEM, 9, 9–35. Zapata Cortés, O. L. (2016). Re-centralización fiscal en Colombia, 2001–2011. Revista Ciudades, Estados y Política, 3(2), 67–87.

8. The link between politics and interacting administrative capacity: the case of citizen participation in Ecuador Julio C. Zambrano-Gutiérrez

8.1 INTRODUCTION Politics and administration are intertwined despite efforts to understand them as two independent mechanisms in public administration (Goodnow, 2017; Svara, 1999). On the one hand, politics is more relevant when seeking to answer inquiries about representation in decision-making. On the other hand, questions about administrative capacity take center stage when aiming to implement public policies with political neutrality (Kaufman, 1969; Rosenbloom,1983; Svara, 2001). However, the classical discussions about politics and administration are based on developed countries’ federal (national) and subnational governments (see Rahman, 2017, for an exception). To further explore the relationship between politics and administration, this chapter contributes by studying the politics–administration linkage across different levels of government in a developing country. The literature in public administration differentiates administrative capacity in a developed country from a developing country setting (Bello-Gomez, 2020; Pina & Avellaneda, 2017; de la Riva Agüero, 2022). In fact, Bello-Gomez (2020) coined the term interacting capacities to show how the performance of decentralized public services is boosted by national governments, particularly when subnational governments lack the administrative capacity to provide public services effectively. However, it is still unknown whether interacting capacities are purely administrative or whether politics influence interacting capacities. The implementation of formal channels for citizen participation is a compelling scenario to study the influence of politics in the interacting capacities between the national and subnational governments in Ecuador. First, citizen participation is one of the five functions of the Ecuadorian state (CRE, 2008, Art. 207), in which its popularly elected members’ primary task is to appoint the highest national authorities (e.g., the comptroller, attorney general). Second, decentralized citizen participation is one of the three functions of subnational governments (COOTAD, 2010, Art. 29), which is implemented through different participatory mechanisms (see Table 8.1). Nonetheless, the Ecuadorian national government has also co-located its administrative structure into local governments through itinerant cabinets to establish direct citizen-state links and boost local citizen participation between 2007 and 2017. In this context, the present chapter focuses on itinerant cabinets, which are temporary co-location of the main authorities of the national government, moving from the government headquarters in Quito to other communities across Ecuador. As a result, citizens can request public goods and services directly from the national authorities, which after further analysis, become citizen commitments from the national government to citizens living in the visited local community. 107

108  Handbook on subnational governments and governance Using data from 202 out of 221 municipalities in Ecuador, this study first tests whether political or structural factors explain the number of citizen commitments during the Ecuadorian national government’s itinerant cabinets across subnational governments between 2007 and 2015 and, second, whether political or structural factors explain the progress in the response to the citizen commitments. Results confirm that municipalities with a less munificent context exhibit more citizen participation through the national government channel (the administrative interacting capacity hypothesis). However, the urgency in responding to citizen commitments is mainly associated with the political cycle (electoral year). Thus, this study shows evidence of how politics influence the interacting administrative capacities of the national and subnational governments to boost the performance of the public sector in a developing country. This chapter is organized as follows: First, the study describes the Ecuadorian administrative and political division, the administrative structure behind citizen participation and its institutionalization process, and the political representation across the different levels of the Ecuadorian government. The next section portrays performance management as the nexus between citizen participation and interacting capacities. To do so, the third section describes the process of registering and analyzing citizen commitments during the Ecuadorian national government’s itinerant cabinets across subnational governments. Afterward, the data section describes the operationalization of the main variables of this study. Finally, the results are followed by a conclusion about the main contributions of this study.

8.2

ECUADORIAN CONTEXT

8.2.1

Administrative and Political Division

The processes of decentralization and autonomy are one of the primary duties of the Ecuadorian state to foster development with territorial equity between its 24 provinces, 221 cantons (municipalities), and 1,724 rural parishes. The three levels of territorial division are administered by decentralized autonomous governments (GADs for its acronym in Spanish: Gobiernos Autónomos Descentralizados) through three functions: legislative, executive, and citizen participation. The legislative and executive functions are based on mechanisms of representative democracy. That is, the candidates for popularly elected roles in the legislative and executive function present work plans from which the citizenry can choose. On the one hand, the legislative function comprises 864 urban councilors, 443 rural councilors, and 2,325 rural parish council members. On the other hand, the executive function shall consist of 23 prefects and vice prefects, 221 municipal mayors, and 1,724 presidents of the rural parishes. Finally, citizen participation was the exception instead of the rule before its institutionalization in the Ecuadorian constitution of 2008. Indeed, citizen participation is one of the five functions of the state (CRE, 2008, Art. 207), it is a right (CRE, 2008, Art. 95), and it is decentralized to the subnational governments as part of their three functions (COOTAD, 2010, Art. 29). 8.2.2

The Structure of Subnational Governments in Ecuador

The processes of political, administrative, and financial autonomy and decentralization crossed a tipping point after the approval of the Constitution of 2008 and the enactment of

The link between politics and interacting administrative capacity  109 the Organic Code of Territorial Organization, Autonomy and Decentralization (COOTAD for its acronym in Spanish: Código Orgánico de Organización Territorial, Autonomía y Descentralización). The COOTAD includes not only the political and administrative division of the Ecuadorian state in the territory, but also the model to carry on with a mandatory and progressive decentralization process (COOTAD, 2010, Art. 1). As a result, the different tiers of government have standardized responsibilities (competencies) and a scheme for financing the fulfillment of current and future competencies. On the one hand, the main competencies of the provincial GADs are: a) planning, building, and maintaining the road system that does not include urban areas; b) planning, building, and operating irrigation systems; and c) promoting productive activities, particularly agricultural (COOTAD, 2010, Art. 42). On the other hand, the main competencies of the municipal GADs are: a) controlling land use; b) providing drinking water, sewerage, wastewater treatment, solid waste management, and environmental sanitation; and c) creating, modifying, or eliminating fees and tariffs (COOTAD, 2010, Art. 55). Additionally, intergovernmental collaborations between subnational governments are expected to manage international cooperation, planning and coordinating local economic development, environmental management, and any other responsibilities in which the different tiers of government are interdependent (see Zambrano-Gutierrez & Avellaneda, 2022a, for more details). There are five types of financial resources available to GADs: management income, transfers from the general state budget, donations and other transfers, royalties due to the exploitation of nonrenewable natural resources, and borrowing (COOTAD, 2010, Art. 171). For all these types of financial resources, the transfers from the general state budget represent approximately 80% of the total revenue on average of GADs (Zambrano-Gutierrez & Avellaneda, 2022b). The transfers from the general state budget correspond to 21% of the permanent income and 10% of the non-permanent income of the Ecuadorian general state budget (COOTAD, 2010, Art. 171). The permanent income represents continuous, periodical, and foreseeable resources, such as the value-added tax and the income tax. The non-permanent income includes temporary, exceptional or extraordinary resources, such as selling public assets, oil revenue, and borrowing (COPFP, 2010, Art. 78). The transfers from the general state budget to the GADs are distributed in the following way: 67% to municipal GADs, 27% to provincial GADs, and 6% to rural parishes (COOTAD, 2010, Art. 192). The transfers from the general state budget to the GADs follow a territorial equity model based on the size of the population, population density, unsatisfied basic needs of the population, and administrative capacity of the GADs (COOTAD, 2010, Art. 195). 8.2.2.1 The political governance of the Ecuadorian subnational governments The executive and legislative authorities are popularly elected every four years with the possibility of being reelected for one term. Voting is mandatory in Ecuador, and sectional elections to vote for subnational authorities are not concurrent with general elections to vote for national authorities (CD, 2009, Art. 90, 93). Political governance is a function of co-partisanship or political alliances between the popularly elected executive and legislative authorities. On the one hand, the political governance at the provincial level happens at the provincial council, which is composed of the popularly elected prefect and vice prefect and all municipal mayors that belong to the province. On the other hand, political governance at the municipal level happens at the municipal council, which is composed of the popularly elected mayor

110  Handbook on subnational governments and governance and municipal councilors. The number of municipal councilors depends on the population of a given municipality (CD, 2009, Art. 156). Additionally, the Ecuadorian legislation reformed the electoral law of 2009 and started choosing political parties instead of individuals in the ballots for the municipal council. Moreover, the reformed electoral law applies the Webster method to allocate seats for the municipal councilors (LORCD, 2020, Art. 164). While the Webster method is supposed to favor minorities by including representatives of more political parties in the council, it is limited due to the small urban and rural circumscriptions in the Ecuadorian context (see Garzón Sherdek & Cahuasquí Cevallos, 2021). 8.2.3

Citizen Participation Within the Checks and Balances System

The institutionalization of citizen participation aims to become an indirect and direct source of checks and balances for the Ecuadorian state across the different levels of government since the approval of the 20th Ecuadorian constitution in 2008. The indirect source is based on the work of the Council for Citizen Participation and Social Control (CPCCS). The CPCCS are popularly elected at the national level from three lists of candidates: one for women, one for men, and one for indigenous, afro-ecuadorians, montubios, and expatriates. Ecuadorian elect seven members to the CPCCS: three women, three men, and one representative from indigenous, afro-ecuadorians, montubios, and expatriate groups (LORCPCCS, 2018). The CPCCS appoints the highest national authorities for the bodies of control and inspection, for example, the comptroller, ombudsman, attorney general, state attorney general, and members of the National Electoral Council, among others (CRE, 2008, Art. 208). Thus, the role of the CPCCS has an indirect impact on the capacity of the state to control abuse of power, corruption, and lack of accountability from public organizations at different levels of government.1 The direct role of citizen participation is institutionalized by mechanisms of representative, participatory, and direct democracy listed in Table 8.1. For example, Ecuador has a long history of political instability, which could be summarized by having seven presidents between 1996 and 2006 (see Acosta & Polga‐Hecimovich, 2011, for more details). As a result, one clear expectation of the institutionalization of citizen participation at the subnational level is to complement the resolution of political crises through democratic mechanisms. In fact, the citizenry can apply for revocatoria de mandato (revoking) for all popularly elected authorities since the enactment of the constitution of 2008.2 According to the information publicly available in the National Electoral Council (CNE), the citizenry has exercised their right to directly try to revoke popularly elected authorities in 49 out of the 221 municipal GADs. Table 8.2 shows municipal mayors as the popularly elected authority with more revoking requests. However, only six out of 17 mayors were effectively removed from office after popular elections (El Universo, 2018). Additionally, 94% of the requests happened against the subnational authorities in office for the 2009 to 2014 period. Finally, citizen requests to revoke the former president of Ecuador, Guillermo Lasso, were not approved due to a “lack of evidence and legal requirements” (CNE, 2022a). However, Guillermo Lasso did not finish his term due to a constitutional mechanism called “muerte cruzada”.3

The link between politics and interacting administrative capacity  111 Table 8.1 Mechanism

Mechanisms of citizen participation at the subnational government level Type

Representative Compulsory

Description

Source

Ecuadorians have the right to choose their representatives during

(CRE, 2008, Art. 61–62,

voting and

subnational government popular elections to hold the following titles: 252–255)

accountability

prefect and vice-prefect, municipal mayors, councilors, and rural parish council members. In addition, all popularly elected authorities are held accountable for the execution of their governing plan.

 

Participatory

Ecuadorians have access to debate about budgetary decisions through (LOPC, 2010, Art.

Budgeting

public deliberation at the subnational government level.

67–71)

 

Empty chair

Ecuadorians can contribute with their expertise in a given topic by

(LOPC, 2010, Art. 77)

(Silla vacía)

joining the subnational government’s cabinet meetings. They can fill in the “empty chair” space in the GADs meetings based on the topics of the meeting agenda.

 

Prior consultation Prior consultation is a collective right of communities that could be affected by environmental degradation in their territories due to

(LOPC, 2010, Art. 81–83)

projects related to the exploitation of nonrenewable resources. While the consultation is not binding, consulted programs are expected to mitigate ecological impacts, compensate for damages, and distribute the benefits of the consulted project.  

Public audience

Ecuadorians can request public audiences to their popularly elected

(LOPC, 2010, Art.

authorities to demand information, present proposals, and debate

73–75)

public affairs across different levels of government. Direct

Normative

Ecuadorians have the right to propose, reform, and eliminate legal

(LOPC, 2010, Art. 6)

popular initiative norms before the legislative function across all levels of government. Revoking

Ecuadorians have the right to revoke any popularly elected authority

(LOPC, 2010, Art. 25)

due to a breach of duty after one year in office and before the last year. Referendum

Ecuadorians can solve public affairs by voting in a popular

(LOPC, 2010, Art. 21)

consultation about matters of national or local interest.

Table 8.2

Revocatorias de mandato (revoking) by popularly elected authority between 2009 and 2022

Popularly Elected Authority

2010

2011

2018

Total

Mayor

1

15

1

17

President Rural Parish

1

12

 

13

Rural Council

 

5

 

5

Rural Parish Council Member

 

9

 

9

Urban Council

 

4

 

4

Vicepresident Rural Parish

 

1

 

1

 

 

 

 

 

Total

2

46

1

49

Note:  The table includes only the type of authority subject to revoking. It does not include the number of members subject to revoking. That is, it could be the case that citizens from a rural parish in a municipal GAD tried to revoke five rural parish council members. Therefore, this table accounts only for the type of revoking (rural parish council member) and not the number of members. Source:  (CNE, 2022b).

112  Handbook on subnational governments and governance Table 8.3

Number of Ecuadorian political organizations between 2004 and 2022 Subnational

General

Subnational

Subnational

Subnational

elections

elections

elections

elections

elections

2004

2009

2014

2019

2022

Political parties

9

13

7

7

6

National political

9

37

5

14

11

73

205

43

43

69

73

129

60

77

174

32

124

9

12

19

 

 

 

 

 

 

Total

196

508

124

153

279

 

movements Provincial political movement Municipal political movement Parochial political movement

Source:  (CNE, 2022).

8.2.4

Representative Democracy and Subnational Governments in Ecuador

Political parties and political movements in Ecuador have institutionalized political representation. Political parties must have a national scope (CRE, 2008, Art. 109), while political movements can be national, provincial, municipal, or parochial. Table 8.3 shows how most political organizations prefer to become political movements instead of political parties. This is because the requirements to register political parties are more complex than the ones for political movements. That is, political parties need to be formally present (i.e., directivas provinciales) in at least 50% of the provinces (i.e., 12 out of 24) and include at least two of the three most populated provinces (CRE, 2008, Art. 109; CD, 2009, Art. 319). Without including the composition of political parties and political movements in 2009,4 municipal political movements have been the most common political organization in the Ecuadorian context. This is because municipal GADs are more attractive for political representation due to the salience of municipal responsibilities (competencies), and 67% of the transfers from the Ecuadorian general state budget to GADs are administered by municipalities (COOTAD, 2010, Art. 192). The relative higher importance of municipal GADs to strengthen the roots of representative and participatory democracy in Ecuador has one main limitation: administrative capacity. The lack of administrative capacity can be summarized by the limited amount of own generated revenues in the municipal budget and the lack of implementation of some of the participatory mechanisms listed in Table 8.1. In fact, approximately only 14% of the total municipal revenue is associated with management income (ingresos propios de la gestion), such as local taxes, fees, special improvement contributions, sales of goods and services, and sales of assets. Indeed, most of the municipal budget depends on central government transfers (see Zambrano-Gutierrez & Avellaneda 2022b). Additionally, only 38% of the municipal GADs have implemented the empty chair mechanism in their municipal councils, despite 95% of the municipal GADs having enacted an ordinance for its operation (El Comercio, 2020).

The link between politics and interacting administrative capacity  113

8.3

CITIZEN PARTICIPATION AND INTERACTING ADMINISTRATIVE CAPACITIES

Administrative capacity is a multidimensional concept that is associated with the internal resources available in an organization in terms of knowledge, managerial skills, infrastructure, personnel, and financial resources (Avellaneda, 2016; Christensen & Gazley, 2008; Ingraham, Joyce, & Donahue, 2003; Rainey & Steinbauer, 1999). Recently, there have been efforts to apply the concept of administrative capacity in the context of local governments in developing countries (see Bello-Gomez, 2020; Pina & Avellaneda, 2017; de la Riva Agüero, 2022). For example, de la Riva Agüero (2022) disentangles administrative capacity in general and specific terms to understand waste management in Peruvian local governments. Similarly, we can propose that Ecuadorian municipal GADs could have the sufficient general administrative capacity to provide essential public goods and services but not the specific administrative capacity to implement citizen participation mechanisms to solve complex social issues. Interestingly, Bello-Gomez (2020) coined the term interacting capacities to study the contribution of national deconcentrated capacity on Colombian subnational governments’ performance. Findings showed that national deconcentrated capacity contributes to subnational government performance, but this relationship is negatively moderated by subnational administrative capacity. Likewise, we can propose that the national capacity to implement participatory mechanisms will improve citizen participation in municipal GADs with more limited resources. 8.3.1

Interacting Capacities and Performance Management Systems

One example of the national government’s administrative capacity is the implementation of performance management systems (PMSs). PMS have been analyzed in the context of public management and administration (see Bozeman & Bretschneider, 1986; Olvera & Avellaneda, 2017, for a review). The PMS, as part of the interacting capacities between national and subnational governments, can be understood as political tools (Bjørnholt & Larsen, 2014), as an interacting dialogue (Moynihan, 2008), and as a continuous process to carry out the organization’s strategic planning (Aguinis, 2013). First, the politics behind PMSs define performance measurement to depoliticize policy issues or incorporate policy issues into the political agenda (Bjørnholt & Larsen, 2014). Once policy issues are processed (e.g., depoliticized or included in the political agenda), the interested actors (e.g., national and subnational government representatives) provide meaning to performance information derived from PMSs (Moynihan, 2008). Thus, whether PMSs are effective tools to connect the interacting capacities of the national and subnational governments depends on whether the relevant actors believe the intergovernmental relations have achieved the strategic goals. As strategic goals are based not only on structural but also on political reasons (Aguinis, 2013; Bjørnholt & Larsen, 2014), it could be the case that politics influence the interacting administrative capacities of the national and subnational governments to boost the performance of the public sector.

114  Handbook on subnational governments and governance 8.3.2

Case Study: Citizen Commitments During Itinerant Cabinets in Ecuador

8.3.2.1 Itinerant cabinets The itinerant cabinets aimed to co-locate citizen-state links to bring the state’s management closer to the subnational governments across Ecuador. An extensive description of the origin, operation, and normative assessment behind the itinerant cabinets has been elaborated elsewhere, and it is out of the scope of this analysis (see Flor Recalde, 2017; Muñoz Eraso, 2010 for more details). A description of the main elements to understand the dynamics behind itinerant cabinets follows. 8.3.2.1.1 Background The itinerant cabinets were a vital component of the management model of Rafael Correa’s presidency between 2007 and 2017. The leading authorities of the executive branch traveled from Quito, the capital city and seat of government, to other Ecuadorian cities, usually the second most populated city in a province, once a month. An itinerant cabinet starts with a meeting between the president and his ministerial cabinet to cover a national agenda of priorities. Then, local popularly elected authorities (e.g., prefect, municipal mayor) and other critical subnational government representatives would join the cabinet meeting to cover a local agenda of priorities. For example, common points in the local agendas are proposals for public investment in local infrastructure, social programs in local communities, and socio-environmental conflicts. 8.3.2.1.2 Co-locating citizen-state links The location of the itinerant cabinet was a public school or high school from the hosting municipality. There were at least six sectoral working groups in the selected locations from which the citizenry could request direct assistance for their local needs. These working groups corresponded to Correa’s presidency sectoral councils, which were: 1) social development, 2) economic policy, 3) production, employment, and competitivity, 4) strategic sectors, 5) security, and 6) human talent and knowledge. 8.3.2.1.3 Citizen commitments Community members participating in the itinerant cabinets request assistance from the representatives of one of the sectoral working groups. Once a representative from the sectoral council qualifies the community request as viable, the request becomes an itinerant cabinet’s commitment to a citizen request, better known as compromisos ciudadanos (citizen commitments). Figure 8.1 shows the evolution of citizen commitments by sectoral working groups. The sectoral working group with more citizen commitments was production, employment, and competitivity, with approximately 32% of the requests. This is because the Ministry of Agriculture, Livestock, and Fisheries and the Ministry of Transport and Public Works accumulated 10% and 7% of requests at the ministerial level. However, the ministry with more requests was education, with 14% of the requests. In fact, the number of requests to the ministries from the sectoral working group of human talent and knowledge, where the Ministry of Education belonged, was one of the highest at the end of the analysis period. 8.3.2.1.4 Performance management system Once the requests from community members in an itinerant cabinet became citizen commitments, they were registered into the performance management system of the national

The link between politics and interacting administrative capacity  115

Figure 8.1

Evolution of citizen commitments by sectoral working groups

government, known as SIGOB (Sistema de Información para la Gobernabilidad). According to the data from SIGOB, 60% of the citizen commitments were fulfilled, 30% were discarded, 8% were in progress, and 2% were under analysis due to inconsistencies during the period 2007 to 2015.

8.4 DATA Data for this study come from the National Secretariat of Public Administration (SNAP) database about citizen commitments generated during 108 itinerant cabinets across Ecuadorian subnational governments. After an official request, SNAP shared the database between 2007 and 2016 (SNAP, 2016). This study does not include citizen commitments after 2015 because data were incomplete or unavailable. The SNAP has kept an administrative register every time a citizen commitment was generated in the sectoral tables of itinerant cabinets since 2007. Each citizen commitment includes the date of registration, location, and implementation progress. The data represent all Ecuadorian provinces and approximately 91% of the Ecuadorian municipalities, or 202 out of 221 municipalities, with registered citizen commitments between 2007 and 2015. 8.4.1

Response Variables

There are two dependent variables to analyze the national government’s political and administrative incentives to complement the administrative capacity of subnational governments to

116  Handbook on subnational governments and governance foster citizen participation: a) the number of citizen commitments each year at the municipal level, and b) the average implementation progress, in percentage points, for all citizen commitments each year at the municipal level. 8.4.2

Political Explanations

The implementation progress of citizen commitments could be associated with incentives to maintain political power at the national and subnational levels. First, the same partisanship between the Ecuadorian president and municipal mayors could explain performance. Using data from the National Electoral Council (CNE, 2022), mayor-president same partisanship is a dichotomous indicator equal to one (1) when there is a matching in the political party affiliation between a municipal mayor and the Ecuadorian president and zero (0) otherwise. Additionally, the year of the national government elections could explain the variation in the percentage of implementation progress of citizen commitments. The electoral year is a dichotomous indicator equal to one (1) when there were presidential elections (i.e., 2009 and 2013) during the period of analysis and zero (0) otherwise. 8.4.3

Structural Explanations

The demographic and socioeconomic characteristics of the Ecuadorian municipalities could be associated with national government incentives to complement the administrative capacity of subnational governments to foster public participation. Using data at the municipal level from several Ecuadorian public organizations, fiscal dependency measured by transferences of the national government as a proportion of the total municipal revenue (MEF, 2019), the munificence of the municipal economy – represented by the gross domestic product (BCE, 2019), the poverty level, and the population (INEC, 2019) are included in this study. Table 8.4 provides descriptive statistics and sources for all variables. Table 8.4

Descriptive statistics

Variable

Mean

Std. dev. Min

Max 261

Correlation 1 2 1  

3  

4  

5  

6  

7  

Source 8   (SNAP,

1. Citizen commitments

16.99

31.57

1

2. Implementation

69.89

28.55

0

100

-0.05

1

 

 

 

 

 

2016)   (SNAP,

progress 3. Mayor-President

0.20

0.40

0

1

0.05

0.11* 1

 

 

 

 

2016)   (CNE,

co-partisanship 4. Electoral year

0.19

0.39

0

1

-0.06

0.06

-0.07 1

 

 

 

2022)   (CNE,

5. Fiscal dependency

67.40

14.67

27.73

98.95

-0.16* -0.01 0.03

-0.11* 1

 

 

2022)   (MEF,

6. GDP (million USD)

560.58

2288.99 4.02

23,842.16 0.14* 0.03

0.09* 0.02

-0.27* 1

 

2019)   (BCE,

7. Population (thousand)

101.02

309.09

2.16

2,589.23 0.15* 0.01

0.08* 0.02

-0.30* 0.95* 1

8. Extreme poverty

39.99

16.27

6.50

90.10

-0.18* -0.15* -0.13* -0.01

2019)   (INEC,

2019) 0.41* -0.26* -0.26* 1 (INEC, 2019)

Note:  * p-value