The Design and Administration of Intergovernmental Transfers · Fiscal Decentralization in Latin America

This document examines the design and adminstration of intergovernmental transfers in recent decentralized governments. Even in decentralized systems, central government structures have permanent objectives relative to the efficiency and equity of the provisions of services by subnational government. The study, in light of these objectives, evaluates the Latin American experience using specific transfers in the education, health and rural highway sectors, and it suggests alternatives in the design of grants. The study suggests more frequent use of specific well designed sector transfers, and it emphasizes the way in which the weak administrative capacity of both government structures, central and subnational, seriously hinder the utility of incentives and conditions of the grants. Given these administrative weaknesses, the development of mechanisms that promote the yield of accounts on behalf of the local government to the local citizens is of special importance. The central government could play an important role in providing the required information for the citizens to supervise the provision and financial administration of local services.