Open Access Open Access  Restricted Access Subscription or Fee Access

A Fiscal Need Approach to Sub-National Fiscal Equalization. Application to the Case of Chile

Leonardo E. Letelier S., Francisco Mesa


This research is intended to measure the gap between the existing level of grants for municipalities for school level education, primary health services and other services, regarding a theoretically advisable per beneficiary expenditure level based on the so-called ‘Fiscal Need Approach to Equalization’ as developed by Shah (1996, 2007). This general aim is being tackled while acknowledging that decentralization is a multi- dimensional concept, of which the fiscal one is imbedded in a wider political and economic context. Since the early eighties, Chilean municipalities have administered both school level public education as well as primary health centers, on account of which the central government grants municipalities a certain amount per beneficiary. Our main findings suggest that Chile is not a fiscally ‘centralized’ country as far as the distribution of general government spending in the areas being examined is concerned. Nevertheless, this result does not preclude acknowledging that Chile is still centralized from an economic view point. In this regard, future research should explore ways of promoting convergence across regions nationwide.


fiscal decentralization, local public services, intergovernmental equalization grants, municipal needs, municipal fiscal capacity, Chile


Ahmad E. & Saerle B. (2006) On the implementations of transfers to subnational governments, In: Ahmad, E. & Brosio, G. (eds.) Handbook of Fiscal Federalism (Cheltenham, UK & Northampton, MA: Edward Elgar).

Clemens, J. & Veldhius N. (2013) Federalism and Fiscal Transfers in Canada, In: Federalism and Fiscal Transfers: Essays on Australia, Germany, Switzerland and the United States (Ontario: FRASER Institute).

CONCEP (2013) Sistema General de Participaciones (Bogotá, Colombia: Vigencia).

Koo C. D., Kim H. J. & Kim P. S. (2014) Analysis of the Unequal Welfare Service Distribution among Local Governments in Korea, Lex Localis-Journal of Local Self-Government, 12(2), pp 125-248.

Le Goff, P. (2005) ‘Australia’s Equalization System’, Parliamentary Information and Research Service (Ottawa: Library of Parliament).

Letelier S. L. (2006) Local Government Organization and Finance in Chile, In: Shah, A. (ed.) Local Governance in Developing Countries. Public Sector Government and Accountability Series (Washington D. C.: World Bank), pp. 419-446.

Letelier, S. L. (2009) ‘Beneficios, costos y viabilidad de la Descentralización Fiscal en Chile’, In: Baer, V. (ed.) Mirando a Chile desde las Regiones (Temuco: Instituto de Desarrollo Local y Regional, Universidad de la Frontera).

Letelier, S. L. (2012) Teoría y Práctica de la Descentralización Fiscal Ediciones UC (Pontificia : Universidad Católica de Chile).

Letelier S. L. & Neyra G. (2012) The Political Economy of Regional Grants in Perú, CEPAL Review, 109, pp 159-174.

Letelier, S. L. & Suarez Pandeillo, J. S. (2014) The political economy of national to sub-national government grants in Chile, paper presented at the II Jornadas Iberoamericanas de Financiación Local, Toledo, España.

Oates, W. (1972) Fiscal Federalism (New York: Harcourt, Brace Jovanovich).

OECD (2006) Intergovernmental Transfers and Decentralized Public Spending, Working Paper No. 3 (Paris: OECD).

Palermo, F. & Wilson, A. (2013) The Dynamics of Decentralization in Italy: Towards a Federal Solution?, European Diversity and Autonomy Papers (Bolyano: EDAP).

Rezk E., Ricca V. & Lafit G. (2011) Coparticipación Federal de Impuestos en Argentina y Propuesta de arreglos fiscales interjurisdiccionales, In: Rezk, E., Pedraja Chaparro, F. & Suarez Pandiello, J. (eds) Coparticipación Impositiva Argentina Financiación Autónoma Española (Viamonte: Fondo Editorial Consejo).

Rubio C. (2014) Análisis del desempeño del Fondo Nacional de Desarrollo Regional (FNDR) en la Región Metropolitana, MGGP thesis (Santiago: Instituto de Asuntos Públicos, Universidad de Chile).

Shah A. (1996) A Fiscal Need Approach to Equalization, Canadian Public Policy, 22(2): 99-115.

Shah A. (2007) A Practitioner’s Guide to Intergovernmental Fiscal Transfers, In: Boadway R. & Shah A. (eds.) Intergovernmental Fiscal Transfers. Principles and Practice (Washington D. C.: The World Bank Institute).

Smith P. (2012) Formula Funding of Public Services (New York: Routledege).

Ter-Minassian T. (2012) Reform Priorities for Sub-National Revenues in Brazil, Policy Brief N. IDB-PB 157 (New York: Inter-American Development Bank).

Vojinovic B., Mikac M. & Oplotnik, Z. J. (2013) The Microeconomics of Regional Development: Measuring Convergences of Local and Regional Business Cycles, Lex Localis-Journal of Local Self-Government, 11(3), pp 777-797.

Zellner, A. (1962) An efficient method of estimating seemingly unrelated regression equations and tests for aggregation bia,. Journal of the American Statistical Association, 57(298), pp. 348–368.

Full Text: PDF