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This paper reviews some of the main issues with intergovernmental transfers in Latin America. The analysis is set against the backdrop of the basic normative principles of revenue assignments and the practice of sub-national government financing in the region. Own revenue collections and an equalization transfer program are key components of a sound sub-national fiscal structure. However, in most Latin American countries own revenue collections represent a minor share of sub-national revenues and equalization programs, if present, are generally not properly designed. Instead, sub-national finances in the region heavily rely on revenue sharing schemes with often multiple and unclear objectives and with negative effects on equity and economic efficiency. In this paper we provide a critical analysis of those revenue sharing schemes utilized in Latin America, and propose an alternative approach to the structuring of the transfer systems and more generally of the sub-national revenue systems in the region.


International Center for Public Policy Working Paper Series #1108, Andrew Young School of Policy Studies, Georgia State University.

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