Next Steps for Decentralization and Subnational Governments In Latin America and the Caribbean

Subnational governments in Latin America and the Caribbean are becoming increasingly important in the provision of public goods and services. In fact, their participation in the public expenditure increased from 13 to 25 percent between 1985 and 2015. This document presents the main lines of action that the IDB proposes for decentralization to generate the benefits attributed to it. These lines include: (i) defining the expenditure and service responsibilities of each level of government; (ii) guaranteeing the assignment of own sources of income for subnational governments to fulfill their obligations; (iii) closing the gap between expenditure and own income, and compensating less developed subnational governments; (iv) developing management capacities; and (v) creating mechanisms that facilitate transparency and accountability. In addition, it is proposed that decentralization be carried out in a framework of fiscal responsibility to promote fiscal sustainability among subnational governments. In summary, this document is a reference for any development professional interested in how decentralization is progressing in the region and where it is more suitable to invest limited resources to generate a greater impact.