Discussion Paper

Poverty, politics and local diffusion: resource allocation in Bolivia’s decentralised social fund

Faust, Jörg
Discussion Paper (5/2012)

Bonn: German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE)

ISBN: 978-3-88985-550-3
Price: 6 €

Social investment funds are prominent instruments in developing countries that aim at providing financial resources for social infrastructure projects to poor municipalities. In contrast to traditional, more centralised distribution mechanisms of such funds, the Bolivian Fondo de Inversión Productiva y Social was among the first that employed a self-selection mechanism: municipalities had to apply for funds through a decentralised allocation scheme embedded in the country’s overall fiscal decentralisation process. This study tests several hypotheses regarding potential factors at the local level that might have shaped the distribution pattern among municipalities. It finds positive non-linear relations with diminishing returns between a municipality’s level of poverty and alternative fiscal transfers that could be used for co-financing FPS projects, on the one hand, and the resources it received from the social fund, on the other. Moreover, local neighbourhood effects of FPS funding depended on a municipality’s institutionalised cooperation with its neighbours and its proximity to provincial capitals, which hosted the regional offices of the FPS. Finally, there is no evidence that major traditional parties have over-proportionally profited from the FPS, but municipalities governed by Evo Morales’ anti-system party were significantly disadvantaged.