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dc.titleStimulating Local Economies through Central Transfers: A Natural Experiment from Ecuador
dc.contributor.authorSanchez-Aragon, Leonardo
dc.contributor.authorSánchez, Gonzalo
dc.contributor.authorZanoni, Wladimir
dc.contributor.orgunitCountry Department Andean Group
dc.coverageEcuador
dc.date.available2025-06-02T00:06:00
dc.date.issue2025-06-30T00:06:00
dc.description.abstractThis paper investigates the causal effects of central-to-local government transfers on local economic activity in Ecuador, utilizing exogenous variation from a reform in the intergovernmental transfer formula implemented in 2018. Addressing gaps in the fiscal decentralization literature, this study provides quasi-experimental evidence from a developing country context. Using an instrumental variables approach, we find that a 1% increase in transfers leads to a 1. 19%-1. 26% increase in local business sales, particularly for small and medium enterprises. We identify recurrent spend- ing, primarily current expenditure, such as personnel costs, as the main transmission mechanism, challenging prior literature that emphasizes investment spending. This research contributes novel empirical insights into how transfers impact local economies in middle-income countries and provides relevant policy implications for effectively structuring fiscal decentralization in resource-dependent contexts.
dc.format.extent31
dc.identifier.doihttp://dx.doi.org/10.18235/0013554
dc.identifier.urlhttps://publications.iadb.org/publications/english/document/Stimulating-Local-Economies-through-Central-Transfers-A-Natural-Experiment-from-Ecuador.pdf
dc.language.isoen
dc.publisherInter-American Development Bank
dc.subjectFiscal Policy
dc.subjectFiscal Decentralization
dc.subjectIntergovernmental Fiscal Transfer
dc.subjectPublic Expenditure
dc.subjectLocal Economic Development
dc.subjectSubnational Government
dc.subjectSmall Business
dc.subjectMunicipal Government
dc.subjectValue-Added Tax
dc.subject.jelcodeH77 - Intergovernmental Relations • Federalism • Secession
dc.subject.jelcodeC26 - Instrumental Variables (IV) Estimation
dc.subject.jelcodeO18 - Urban, Rural, Regional, and Transportation Analysis • Housing • Infrastructure
dc.subject.keywordsfiscal decentralization;local economy;instrumental variables
idb.identifier.pubnumberIDB-WP-01694
idb.operationRG-T4568
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