Federalism, Fiscal Authority, and Centralization in Latin America (Cambridge Studies in Comparative Politics)

This book explores the politics of fiscal authority, focusing on the centralization of taxation in Latin America during the twentieth century. The book studies this issue in great detail for the case of Mexico. The political (and fiscal) fragmentation associated with civil war at the beginning of the century was eventually transformed into a highly centralized regime. The analysis shows that fiscal centralization can best be studied as the consequence of a bargain struck between self-interested regional and national politicians. Fiscal centralization was more extreme in Mexico than in most other places in the world, but the challenges and problems tackled by Mexican politicians were not unique. The book thus analyzes fiscal centralization and the origins of intergovernmental financial transfers in the other Latin American federal regimes, Argentina, Brazil, and Venezuela. The analysis sheds light on the factors that explain the consolidation of tax authority in developing countries. Cover......Page 1 Half-title......Page 3 Series-title......Page 5 Title......Page 7 Copyright......Page 8 Dedication......Page 9 Contents......Page 11 Figures......Page 13 Tables......Page 15 Preface......Page 17 Federalism, Fiscal Authority, and Centralization in Latin America......Page 21 1.1. The Fundamental Dilemma of Fiscal Centralization......Page 23 1.2. Fiscal Centralization around the World......Page 24 1.3. Federalism, Political Parties, and Fiscal Authority......Page 32 1.4. The Federal Bargain: Delegation and Commitment......Page 35 1.5. Time Inconsistency Exacerbating the Commitment Problem......Page 41 1.6. Redistribution......Page 43 1.7. The Latin American Federations and Fiscal Centralization......Page 49 1.8. Plan of the Book......Page 52 Appendix to Chapter 1......Page 54 PART I Fiscal Centralization in Mexico......Page 57 2.1. Taxation, Federalism, and the Dilemma of Regional Development......Page 61 2.2. The Mexican Fiscal System after the Revolution......Page 63 2.3. Explaining the National–Local Cleavage in the First National Tax Convention......Page 71 2.4. Collective Action and Social Choice in a Federal Bargain......Page 86 2.5. Commitment and Failed Fiscal Coordination......Page 93 3.1. Party Politics and Regional Fragmentation......Page 96 3.2. Parties as Institutional Solutions to Ambition, Collective Action, and Social Choice......Page 98 3.3. Political Ambition and the Founding of the Regional Party......Page 100 3.4.1. Corporatism Triumphant......Page 105 3.4.2. Developmentalism......Page 107 3.4.3. The Reorganized Corporatist Party......Page 108 3.5. Nominations and Control of Electoral Processes......Page 109 3.5.1. Staggered Electoral Calendar......Page 110 3.5.2. State Politics......Page 111 3.5.3. Local Politics and Bossism......Page 113 3.6. The Hegemonic Party and Fiscal Authority......Page 114 4.1. Stability in Political Ambition......Page 120 4.2. The Conventional Wisdom......Page 121 4.3. A Spatial Model of Gubernatorial Nomination......Page 125 4.4. Evidence Drawn from Governors’ Ideological Positions......Page 133 5.1. The Consequences of Centralization......Page 145 5.2. Tax-Sharing Agreements and the Rise of Participaciones......Page 147 5.3. Discretion in Federal Public Investment in the States......Page 156 5.4. The Distribution of Revenue-Sharing across States......Page 161 5.5. Democracy and Fiscal Federalism......Page 165 PART II Centralization and Revenue-Sharing in the Latin American Federations......Page 171 6.1. The Abdication of Fiscal Authority......Page 179 6.2. The Venezuelan Fiscal Pact......Page 180 6.3. Oil, Federal Transfer Shirking, and the Loss of Federalism......Page 183 6.4. Democracy and Federal Compliance......Page 188 6.5. Statistical Analysis of the Evolution of Revenue-Sharing......Page 191 6.6. The Distribution of Revenue-Sharing among States in Venezuela......Page 196 6.7. Recent Developments......Page 200 7.1. Coalition Formation in the Midst of Instability......Page 202 7.2. The Argentine Fiscal Pact......Page 205 7.3. The Fiscal Bargain......Page 208 7.4. Revenue-Sharing under Perón......Page 213 7.5. Authoritarianism and Shirking of Revenue-Sharing Promises......Page 217 7.6. Statistical Analysis of the Evolution of Revenue-Sharing......Page 221 7.7. The Distribution of Revenue-Sharing among Provinces in Argentina......Page 224 7.8. Recent Developments......Page 229 8.1. Resilient Federalism......Page 232 8.2. Strong States and the Retention of Fiscal Authority......Page 234 8.3. Origins: The Politics of the States......Page 237 8.4. Authoritarianism and Revenue-Sharing......Page 241 8.5. Statistical Analysis of the Evolution of Revenue-Sharing......Page 244 8.6. Redistribution in the Brazilian Federation......Page 246 8.7. Federalism, Fragmentation, and the “Fiscal War”......Page 250 9.1. Nation-Building......Page 254 9.2. Fiscal Politics and Tax Structure......Page 262 9.3. Federalism, Decentralization, and Redistribution......Page 265 References......Page 271 Index......Page 291 Cover 1 Half-title 3 Series-title 5 Title 7 Copyright 8 Dedication 9 Contents 11 Figures 13 Tables 15 Preface 17 Federalism, Fiscal Authority, and Centralization in Latin America 21 1 Federalism, Party Hegemony, and the Centralization of Fiscal Authority 23 1.1. The Fundamental Dilemma of Fiscal Centralization 23 1.2. Fiscal Centralization around the World 24 1.3. Federalism, Political Parties, and Fiscal Authority 32 1.4. The Federal Bargain: Delegation and Commitment 35 1.5. Time Inconsistency Exacerbating the Commitment Problem 41 1.6. Redistribution 43 1.7. The Latin American Federations and Fiscal Centralization 49 1.8. Plan of the Book 52 Appendix to Chapter 1 54 PART I Fiscal Centralization in Mexico 57 2 Regional Fragmentation and Failed Commitment 61 2.1. Taxation, Federalism, and the Dilemma of Regional Development 61 2.2. The Mexican Fiscal System after the Revolution 63 2.3. Explaining the National–Local Cleavage in the First National Tax Convention 71 2.4. Collective Action and Social Choice in a Federal Bargain 86 2.5. Commitment and Failed Fiscal Coordination 93 3 The Official Party as a Regional Compromise 96 3.1. Party Politics and Regional Fragmentation 96 3.2. Parties as Institutional Solutions to Ambition, Collective Action, and Social Choice 98 3.3. Political Ambition and the Founding of the Regional Party 100 3.4. The Corporatist Party and the Survival of Local Bosses 105 3.4.1. Corporatism Triumphant 105 3.4.2. Developmentalism 107 3.4.3. The Reorganized Corporatist Party 108 3.5. Nominations and Control of Electoral Processes 109 3.5.1. Staggered Electoral Calendar 110 3.5.2. State Politics 111 3.5.3. Local Politics and Bossism 113 3.6. The Hegemonic Party and Fiscal Authority 114 4 Nominations, Veto Players, and Gubernatorial Stability 120 4.1. Stability in Political Ambition 120 4.2. The Conventional Wisdom 121 4.3. A Spatial Model of Gubernatorial Nomination 125 4.4. Evidence Drawn from Governors’ Ideological Positions 133 5 Transfers and Redistribution in the Mexican States 145 5.1. The Consequences of Centralization 145 5.2. Tax-Sharing Agreements and the Rise of Participaciones 147 5.3. Discretion in Federal Public Investment in the States 156 5.4. The Distribution of Revenue-Sharing across States 161 5.5. Democracy and Fiscal Federalism 165 PART II Centralization and Revenue-Sharing in the Latin American Federations 171 6 Venezuela: UNITARIANISM IN DISGUISE 179 6.1. The Abdication of Fiscal Authority 179 6.2. The Venezuelan Fiscal Pact 180 6.3. Oil, Federal Transfer Shirking, and the Loss of Federalism 183 6.4. Democracy and Federal Compliance 188 6.5. Statistical Analysis of the Evolution of Revenue-Sharing 191 6.6. The Distribution of Revenue-Sharing among States in Venezuela 196 6.7. Recent Developments 200 7 Argentina: REGIME CHANGE AND FRAGILE CREDIBILITY 202 7.1. Coalition Formation in the Midst of Instability 202 7.2. The Argentine Fiscal Pact 205 7.3. The Fiscal Bargain 208 7.4. Revenue-Sharing under Perón 213 7.5. Authoritarianism and Shirking of Revenue-Sharing Promises 217 7.6. Statistical Analysis of the Evolution of Revenue-Sharing 221 7.7. The Distribution of Revenue-Sharing among Provinces in Argentina 224 7.8. Recent Developments 229 8 Brazil: THE RETENTION OF FISCAL AUTHORITY 232 8.1. Resilient Federalism 232 8.2. Strong States and the Retention of Fiscal Authority 234 8.3. Origins: The Politics of the States 237 8.4. Authoritarianism and Revenue-Sharing 241 8.5. Statistical Analysis of the Evolution of Revenue-Sharing 244 8.6. Redistribution in the Brazilian Federation 246 8.7. Federalism, Fragmentation, and the “Fiscal War” 250 9 Conclusion: STATE-BUILDING, POLITICAL INSTITUTIONS, AND FISCAL AUTHORITY 254 9.1. Nation-Building 254 9.2. Fiscal Politics and Tax Structure 262 9.3. Federalism, Decentralization, and Redistribution 265 References 271 Index 291 In most countries around the world the collection of taxes is centralized in the hands of the national governments. This book studies the process of fiscal centralization in the Latin American federations and the reasons underlying the variation in the roles that state governments and governors have played in them.