Poverty, Politics and Local Diffusion - Resource Allocation in Bolivia’s Decentralized Social Fund

35 Pages Posted: 9 May 2012

See all articles by Jörg Faust

Jörg Faust

German Development Institute (DIE)

Date Written: May 9, 2012

Abstract

Social investment funds are prominent instruments in developing countries that aim at providing financial resources for social infrastructure projects to poor municipalities. In contrast to traditional, more centralised distribution mechanisms of such funds, the Bolivian Fondo de Inversión Productiva y Social was among the first that employed a selfselection mechanism: municipalities had to apply for funds through a decentralised allocation scheme embedded in the country’s overall fiscal decentralisation process. This study tests several hypotheses regarding potential factors at the local level that might have shaped the distribution pattern among municipalities. It finds positive non-linear relations with diminishing returns between a municipality’s level of poverty and alternative fiscal transfers that could be used for co-financing FPS projects, on the one hand, and the resources it received from the social fund, on the other. Moreover, local neighbourhood effects of FPS funding depended on a municipality’s institutionalised cooperation with its neighbours and its proximity to provincial capitals, which hosted the regional offices of the FPS. Finally, there is no evidence that major traditional parties have overproportionally profited from the FPS, but municipalities governed by Evo Morales’ antisystem party were significantly disadvantaged.

Keywords: Social Funds, Bolivia, Latin America, Decentralization, Poverty, Diffusion, Local Governance, Neighbourhood Effect, Political Parties

JEL Classification: C24, C21, D63, D71, D72, D78, F35, H5, H7

Suggested Citation

Faust, Jörg, Poverty, Politics and Local Diffusion - Resource Allocation in Bolivia’s Decentralized Social Fund (May 9, 2012). Available at SSRN: https://ssrn.com/abstract=2055148 or http://dx.doi.org/10.2139/ssrn.2055148

Jörg Faust (Contact Author)

German Development Institute (DIE) ( email )

Tulpenfeld 6
Bonn, 53113
Germany

HOME PAGE: http://www.die-gdi.de

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