Decentralizing a Centralized State: Local Government Finance in Chile Within the Latin American Context

Abstract

A major issue in Latin. America is the decentralization of public finances and the autonomy of local government. This article begins with a brief review of the ongoing decentralization debate. We then discuss key features of local government finance and autonomy among unitary and federal governments in Latin America. Against that backdrop, we focus on the Chilean case, which has been a widely celebrated success story in the economic development literature. We argue that despite major gains by municipal governments over the past two decades, financial decision making powers still rest with the national government. This creates financial complacency among local governments. To remedy this, we conclude with six proposals for promoting effective decentralization.