Study On Federalism - Meng PDF

University of Pennsylvania
ScholarlyCommons
Wharton Research Scholars Journal Wharton School
5-1-2008
Impact of Governance Structure on Economic and

Social Performance: A Case Study of Latin
American Countries
Joyce Meng
University of Pennsylvania
This paper is posted at ScholarlyCommons. http://repository.upenn.edu/wharton_research_scholars/50

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Impact of Governance Structure on Economic and Social Performance: A
Case Study of Latin American Countries
Abstract
Defined as "the division of public authority between two or more constitutionally defined orders of
government and a set of ideas which underpin such institutions", federalism emphasizes issues such as
shared and divided sovereignty, multiple loyalties and identities, and governance through multilevel
institutions. Proponents of federalism have linked federalism with improved economic and social benefits,
including increased political participation and personal liberties, efficient public and private markets, and a
check on governmental power. Nevertheless, few studies have attempted to empirically prove these claims. In
"Federalism's Values and Value of Federalism", Robert Inman created a multiple regression model to assess the
contribution of federal governance to a countrys economic and social performance. Although Inmans model
provides an important empirical framework, his broad analysis did not incorporate the unique context and
history of different countries, or explain the variation in the results. Hence, through a casestudy of six Latin
American countries and analysis of key social, economic, and rights indicators, this paper seeks to answer the
following research question: How does federalism affect the economic and social performance of Latin
American countries? The conclusions are as follows: (1) Diffusion of political power improves rights
performance and democratic accountability, of which federalism provides an important institutional
framework, (2) The contribution of federalism to aggregate economic performance remains ambiguous, (3)
Decentralization improves access to public goods, in both federal and unitary governments, (4) Federalism,
however, potentially creates political fragmentation that may block important reforms or give rise to a power
vacuum for populist leaders. As a result, rights performance, democratic accountability, and economic and
social progress may stall or deteriorate.
Keywords
government, latin america, economics, culture
Comments
This paper is posted at ScholarlyCommons.Penn.
This thesis or dissertation is available at ScholarlyCommons: http://repository.upenn.edu/wharton_research_scholars/50

WHARTONRESEARCHSCHOLARS
ImpactofGovernanceStructureon
EconomicandSocialPerformance
ACaseStudyofLatinAmericanCountries

JoyceMeng
4/25/2008
Abstract:Definedasthedivisionofpublicauthoritybetweentwoormoreconstitutionallydefined
ordersofgovernmentandasetofideaswhichunderpinsuchinstitutions,federalismemphasizes
issuessuchassharedanddividedsovereignty,multipleloyaltiesandidentities,andgovernancethrough
multilevelinstitutions.Proponentsoffederalismhavelinkedfederalismwithimprovedeconomicand
socialbenefits,includingincreasedpoliticalparticipationandpersonalliberties,efficientpublicand
privatemarkets,andacheckongovernmentalpower.Nevertheless,fewstudieshaveattemptedto
empiricallyprovetheseclaims.InFederalismsValuesandValueofFederalism,RobertInmancreated
amultipleregressionmodeltoassessthecontributionoffederalgovernancetoacountryseconomic
andsocialperformance.AlthoughInmansmodelprovidesanimportantempiricalframework,hisbroad
analysisdidnotincorporatetheuniquecontextandhistoryofdifferentcountries,orexplainthe
variationintheresults.Hence,throughacasestudyofsixLatinAmericancountriesandanalysisofkey
social,economic,andrightsindicators,thispaperseekstoanswerthefollowingresearchquestion:How
doesfederalismaffecttheeconomicandsocialperformanceofLatinAmericancountries?The
conclusionsareasfollows:(1)Diffusionofpoliticalpowerimprovesrightsperformanceanddemocratic
accountability,ofwhichfederalismprovidesanimportantinstitutionalframework,(2)Thecontribution
offederalismtoaggregateeconomicperformanceremainsambiguous,(3)Decentralizationimproves
accesstopublicgoods,inbothfederalandunitarygovernments,(4)Federalism,however,potentially
createspoliticalfragmentationthatmayblockimportantreformsorgiverisetoapowervacuumfor
populistleaders.Asaresult,rightsperformance,democraticaccountability,andeconomicandsocial
progressmaystallordeteriorate.
TableofContents
Introduction .................................................................................................................................... 3
ResearchQuestion ...................................................................................................................... 4
SummaryofResults .................................................................................................................... 5
FederalisminLatinAmerica............................................................................................................ 6
Definitionofgeneralconceptsandterms .................................................................................. 6
OriginsofModernFederalisminLatinAmerica: ........................................................................ 7
CaseStudySelection ................................................................................................................... 9
BenchmarkCase:FederalDemocracyBrazil.......................................................................... 11
Implications ........................................................................................................................... 14
BenchmarkCase:FederalDemocracyArgentina................................................................... 16
Implications ........................................................................................................................... 19
Case#1:Venezuela(Federal/Democracybutlowprovincialrevenueassignment) .............. 21
Implications ........................................................................................................................... 25
Case#2:Uruguay(AdministrativeFederal/Democracy) ........................................................ 27
Implications ........................................................................................................................... 30
Case#3:Mexico(Federal/Dictatorship) ................................................................................. 32
Implications ........................................................................................................................... 35
Case#4:Chile(Unitary/Democracy) ....................................................................................... 37
Implications ........................................................................................................................... 41
ComparisonofResults .................................................................................................................. 43
EconomicPerformance ............................................................................................................. 43
Implications ........................................................................................................................... 48
RightsIndicators ....................................................................................................................... 50
Implications ........................................................................................................................... 54
HealthandOtherSocialIndicators ........................................................................................... 56
Implications ........................................................................................................................... 59
RuralUrbanDynamic ................................................................................................................ 60
Implications ........................................................................................................................... 61
Conclusions ................................................................................................................................... 62
References .................................................................................................................................... 69
2
Introduction
In1979,WilliamRikerproclaimed,AlthoughAmericansseldomrealizeit,thisisanage
offederalismmostofthemderivedandinspiredbytheConstitutionoftheUnitedStates.1
Thethirtyyearsthatfollowedshowedthisstatementtobeincreasinglytrue.Accordingtothe
ForumofFederations,althoughonly24oftheworlds193countriescurrentlyutilizefederal
politicalsystems,theircitizenscomprise40%oftheworldspopulation.Inaddition,
approximatelytwocountriesmakeatransitiontofederalismeachyear,whilemanyothers
considerincorporatingfederalistelementsintotheirconstitutions.2Inparticular,federations
accountformostoftheterritoryofNorthandSouthAmerica,containedinCanada,theUnited
States,Mexico,Venezuela,Columbia,Brazil,Argentina,andtheBritishWestIndies.
Federalismsappealderivesfromageneralconvictionthatdecentralizationimproves
economicandpoliticalperformanceandaccountability.Existingacademicliteraturehas
focusedonfederationsandtheabilityofregionalgovernmentstoshapeeconomicreform
processesaimedatimprovingandinstitutingmarketmechanisms.Accountabletotheirown
electoralincentives,regionalofficialsmayeschewnationalgovernmentresistancetomarket
friendlyinitiativesandadopttheirownentrepreneurialpolicies.3Likewise,various
developmentexpertsandinstitutionshaveadvocatedfiscalandpoliticaldecentralizationasa
meanstoprofoundlytransformandimprovetheperformanceofthepublicsector.Thelogic
extendsthatbydevolvingauthorityoverpublicgoods,services,taxauthority,andusercharges
tothelocallevel,decentralizationencouragesgreaterefficiencyintheprovisionand
consumptionofpublicgoodsduetoabetterunderstandingoflocalprioritiesandcontexts.4
Inregardstopoliticalperformance,politicalscientistsgenerallyagreethatbasedon
historicaloutcomes,federalismleadstodifferentpolicyoutcomes.Althoughtheimpactof
federalismonpoliticalparticipation,democraticstability,andpoliticalaccountabilitydiffers
dependingontheparticularcharacteristicsofthefederalsystemandthedistributionofpower
withinthesociety,theoristsarguethatfederalismenhancesdemocracybyprovidingchecks
1
Riker, William. Soldiers of the State. Public Affairs Press, Washington. 1979.
2
Forum of Federations, Federalism by Country. <http://www.forumfed.org/en/federalism/by_country/index.php>
Accessed: 22 March 2008
3
Wibbels, Erik. Federalism and the Market. Cambridge University Press. New York, 2005.
4
Wiesner, Eduardo. Fiscal Federalism in Latin America: From Entitlements to Markets. Inter-American
Development Bank, 2003.
3
andbalancesofexistinggovernmentalpoliciesandpractices.Forexample,apoliticalpartyout
ofpowernationallymaystillretainresidualpowerinregionalandlocaloffices.Thepartys
divergentviewsorreservationstonationalgovernmentpoliciesprovidenotonlyasourceof
creativetension,butalsopromotestheeffectivecriticismofgovernmenttostrengthen
democracyandprotectcitizensrights.5
Inordertoempiricallytestthehypothesisthatfederalizedgovernmentimproves
economicandsocialperformance,RobertInmanconstructedamodelthatclassifiedasample
of73countriesasaconstitutionallybasedfederaldemocracy,anadministrativelybased
federaldemocracy,aunitarydemocracy,afederaldictatorship,oraunitarydictatorship.After
introducingadditionalcontrolstocorrectforbias,hecreatedamultipleregressionmodelof
governancestructureonelevenmeasuresofeconomic,democratic,andrightsperformance.
Hisconclusionswereasfollows:(1)decentralizationdoesuniquelycontributetotheprotection
ofproperty,political,andcivilrights,(2)althoughpolicydecentralizationanditsbenefitscanbe
achievedwithinaunitarygovernment,constitutionallyestablishedprovincialorstate
governmentsprovideanextraandimportantprotectivebarrierforpolicydecentralization,(3)
addingpolicydecentralizationorprovincesdoesnotimproveeconomicorrightsperformance
indictatorships.6
AlthoughInmansmodelprovidesanimportantempiricalframeworktoanalyzethe
contributionoffederalgovernancetogreaterpoliticalparticipation,personalrightsand
liberties,andpublicandprivatesectoreconomicefficiency,hisbroadanalysiscouldnotfully
incorporatetheuniquecontextandhistoryofdifferentcountries.Inparticular,givendiffering
historicalandculturalcontexts,theunderlyingrationaleforthecontributionoffederal
governancetoeconomicandsocialperformancemaydifferbyregion.Hence,sinceInmans
empiricalmodelspansacrosscountriesofdifferingincomelevels,geographiclocation,and
historicalevolution,acasestudywouldrevealcriticalinsightstoassessandsupplementthe
conclusionsoftheempiricalmodel,explainingthevariationwithinthemodel.
ResearchQuestion
5
Bodenhamer, David. Federalism and Democracy. Democracy Papers, U.S Department of State.
<http://usinfo.state.gov/products/pubs/democracy/dmpaper4.htm>
6
Inman, Robert. Federalisms Values and the Value of Federalism NBER Working Paper 13735, January 2008.
4
Thispaperseekstoanswerthefollowingquestion:Howdoesfederalismaffectthe
economicandsocialperformanceofLatinAmericancountries?Duringthecourseofthe
nineteenthcenturyrebellionagainstSpain,manyLatinAmericancountriescreatedfederal
governments,adaptingtheAmericanmodeltotheirowncircumstances.Althoughnotallof
thesefederationssurvivedforexample,ChilebecameaunitarystateandtheCentral
AmericanFederationdissolvedmanyofthelargestcountriesinLatinAmericanremain
federations.7SincemanyLatinAmericancountriesshareasimilarcultureandhistorical
evolution,acasestudyofcountrieswithdifferentgovernancestructurescanreveal
generalizableinsightsabouttheimpactofgovernancestructureonrightsprotection,
democraticaccountability,andeconomicperformance.

Intermsoforganization,thispaperfirstsummarizesthecurrentstateoffederalismin
LatinAmerica,providingtheoreticalfoundationslinkingfederalismandfiscaldecentralizationin
LatinAmericatoimprovedeconomicandsocialperformance.Second,thepaperpresentsan
overviewoftheselectedcountriesandexplainsthemethodsofcomparison.Third,thepaper
presentscasesabouteachcountry,describinggovernmentstructure,providingatableof
indicators,andexplainingtheirimplications.Fourth,thepapercomparesandcontrasts
indicatorresultstodeterminewhethergovernancestructuredidindeedimproveeconomic,
rights,andpoliticalperformance.
SummaryofResults
Thefindingsofthecasestudyaresummarizedasfollows:
1. Diffusionofpoliticalpowerimprovesrightsperformanceanddemocratic
accountability,ofwhichfederalismprovidesanimportantinstitutionalframework.

2. Thecontributionoffederalismtoaggregateeconomicperformanceremains
ambiguous.
3. Decentralizationimprovesaccesstopublicgoods,inbothfederalandunitary
governments.
4. Federalism,however,potentiallycreatespoliticalfragmentationthatmayblock
importantreformsorgiverisetoapowervacuumforpopulistleaders.Asaresult,
rightsperformance,democraticaccountability,andeconomicandsocialprogress
maystallordeteriorate.
7
Riker, William. Soldiers of the State. Public Affairs Press, Washington. 1979.
5
FederalisminLatinAmerica
Definitionofgeneralconceptsandterms
Definedasthedivisionofpublicauthoritybetweentwoormoreconstitutionally
definedordersofgovernmentandasetofideaswhichunderpinsuchinstitutions,federalism
emphasizesissuessuchassharedanddividedsovereignty,multipleloyaltiesandidentities,and
governancethroughmultilevelinstitutions.8AccordingtoEdwardGibson,federalizationhas
meantaprocessofpoliticaldecentralizationthathasgivengreaterprotagonismtosub
nationalgovernmentsandpoliticalactors,hasoftenheightenedtheimportanceofterritorial
representation(asopposedtopopulationrepresentation)innationalpoliticalinstitutions,and
hasredistributedpowerandresourcesbetweenlevelsofgovernment.9

Proponentsoffederalismhavelinkedfederalismwithimprovedeconomicandsocial
benefits,includingincreasedpoliticalparticipationandpersonalliberties,efficientpublicand
privatemarkets,andacheckongovernmentalpower.Indesigningpoliticalstructuresfornewly
formedstates,federalismhasemergedasapopularalternative,associatedwithattemptsat
conflictresolutionandpoliticalintegration.Asacontractuallinkage,federalismprovidesfor
powersharing,cutsaroundtheissueofsovereignty,andsupplementsbutdoesnotseekto
replaceordiminishpriororganictieswheretheyexist.10Giventhehighdegreeofethnic,
religiousorlanguagefractionalizationofinmanycountries,thefederalprinciplehasemerged
asapopularremedyforaddressingseeminglyintransigentpoliticalproblemswithahistorical
basisinconflictingnational,ethnic,linguistic,andracialclaims.

AccordingtotheInterAmericanDevelopmentBank,decentralizationisaprocess
wherebyacountrysuccessfullyadoptsmacroeconomicandsectorpoliciestoencouragethe
provisionandconsumptionofgoodsandservicesataparticularlevelofgovernment
institutionalarrangementorpolicyareawhereitwillbemostefficienttodoso.11
Prominentlyemergingduringthepasttwodecadesasakeypublicsectorreformindeveloping
countries,academicsandpractitionershaverecommendeddecentralizationasameansto
8
Knop, Ostry, Simeon, Swinton. Rethinking Federalism: Citizens, Markets, and Governments in a Changing World.
UBC Press, British Columbia, 1995.
9
Gibson, Edward. Federalism and Democracy. Federalism and Democracy in Latin America. Johns Hopkins
University Press, 2004.
10
Elazar, Daniel. Federalism as Grand Design. University Press of America, 1987.
11
6
improvegovernmentperformanceandsupporteconomicdevelopment.Inextricablylinkedwith
democratizationthroughtheemphasisongivingcitizensmorevoiceinshapingpublicresource
allocation,manyinternationaldevelopmentagencieshaveprovidedsubstantialfinancialand
technicalsupportfordecentralizationinitiatives.Nevertheless,PaulSmokeandotherexperts
havepointedoutthatthenormativeideasofdecentralizationfromsocialscienceoftenhave
littleempiricalevidenceoradequateconsiderationoftheapplicationofcomplexreformin
differentcontexts.12Hence,analyzingtheactualimplementationofdecentralizationina
particularcountryanditscorrespondingresultsprovidesamuchmorerobustdeterminationof
overallsustainabilityandimpact.
OriginsofModernFederalisminLatinAmerica:
LatinAmericasthreelargestcountriesBrazil,Mexico,andArgentinaarefederal
republics,comprising65%oftheregionspopulation.Hence,understandingthedynamicsof
federalismandanalyzingitsassociatedpoliticaloutcomesisessential.InLatinAmerica,the
debtcrisisofthe1980ssparkeddramaticchangesineconomicandpoliticalorganization.
Coincidingwiththebeginningsofliberalizationthefirstmovementofthetransitionto
democracytheLatinAmericanpublicsphereshiftedpoliticsfromthestatetothesocietal
level.13Asanalternativetothecentralstateasanagentofnationaleconomicdevelopmentand
fiscalmanagement,LatinAmericangovernmentstransitionedtowardsincreasingthe
predominanceofprovincialandmunicipalgovernmentsinmanagingfiscalandadministrative
responsibilities.Ineconomicinvestmentandproduction,privateenterprisebegantosupplant
stateownedenterprises.Giventhatthepoliticalfeaturesoffederalismsupportedastructure
ofdecentralization,aprofoundredistributionofpoweroccurred,empoweringlocalgovernors
withpoliticalandfiscalresourceswithformalconstitutionalpower.14
Simultaneously,disenchantmentwiththemilitarygovernmentsofthe1960s1970s
eruptedinmassparticipatorydemonstrationsagainstcentralauthorityandtheirabusesofcivil
andhumanrights.Throughoutthe1980s,powerdevolvedfrommilitaryauthoritiestocivilian
parties,therebyvalidatingfederalinstitutionsandempoweringsubnationalactors.Asinthe
caseofhumanrightsmovementsinArgentinaandBrazil,themassmobilizationofcivilians
undercutthepowerofcentralauthority,affirmingtheimportanceofrightsprotectionasanon
12
Smoke, Gmez, Peterson. Decentralization in Asia and Latin America. Edward Elgar Publishing Limited, 2006.
13
Avritzer, Leonardo. Democracy and the Public Space in Latin America. Princeton University Press, 2002.
14
Gibson, Edward. Federalism and Democracy. Federalism and Democracy in Latin America. Johns Hopkins
7
negotiablematter.15Likewise,urbansocialmovementsinBrazilandMexicosoughttoimprove
thematerialinfrastructureoftheurbanpoorthroughthecreationofindependent
neighborhoodorganizations.Challengingconventionalformsofpoliticalmediationbyrefusing
toacceptpartyincorporationformaterialbenefits,theseautonomouscitizenorganizations
profoundlychangedlocalpoliticsandthedistributionofpublicgoods.
Asaconsequenceoftheconfluenceofeconomicandpoliticalchange,thegrowing
presenceofalternativepoliciesandinstitutionalinnovationsfirmlychallengedtheentrenched
centralauthority.Throughliberalizationandthediscreditingofcentralauthority,Latin
Americansocietiesrestoredpoliticalcompetitionandincreasedthepredominanceofsub
nationalactors.Emphasizinglocalactionandgrassrootsmobilization,collectiveaction
increasedtheoveralllevelofpoliticalparticipation,ofwhichfederalismprovidedanimportant
politicalframework.
Ingeneral,LatinAmericasdecentralizationprocesscanbeorganizedintotwodistinct
periodsthefirstgenerationperiodbeginningintheearly1980sandthesecondgeneration
periodthatbeguninthelate1990s.AccordingtoastudybytheInterAmericandevelopment
bank,thefirstgenerationphasewaslargelycharacterizedby:

1. Constitutionalreformsthatincorporatedautomaticandunconditionedtransfersforthe
centralgovernmenttothesubnationallevel(i.e.:Constitutionof1988inBrazil,
Constitutionof1991inColombia)
2. Targetedfiscaltransferstospecificsectorsandtolowincomegroups
3. Devolutionofresourcesandresponsibilities
4. Delegationofsomelimitedtaxingandspendingauthority
5. Lackofanyindependentevaluationofresults
Inthisearlyphase,thegovernmentfaceddifficultiesinmanagingthefiscaltransfers
efficiently,especiallywhensequencingflaws,inwhichsettingtherevenuedecentralization
targetprecededdevolutionofresponsibilities,ledtoalossofaccountabilityandduplicationof
expenditures.In1994,theInterAmericanDevelopmentBankobservedthatotherthanChile,
thetransfersysteminLatinAmericawereseverelyflawed,especiallysincedecentralization
policiesfailedtotakeintoaccountmarketbasedprinciples,suchasincentivesandpublic
choicetheory.Inadditiontodestabilizingtheoverallmacroeconomicframework,thetransfer
systemsdidnotincreasesectoraldecentralizationorspurdevelopmentofstronglocal
15
Avritzer, Leonardo. Democracy and the Public Space in Latin America. Princeton University Press, 2002.
8
institutionsinhealth,education,andothersocialservices.Infact,decentralizationincreased
haphazardgovernmentspending,assubnationalgovernmentsenactedinitiativeswithlittle
regardforbudgetconstraints.Asaresult,seriousfiscalproblemsemergedinArgentina,Bolivia,
Brazil,Colombia,Ecuador,Mexico,andVenezuelabytheearly1990s.16
Inanattempttorestructuredecentralizationpolicies,Brazil,Chile,andMexicobegan
implementingasecondgenerationapproach,characterizedbymacroeconomicbudget
constraints,astrongintergovernmentalregulatoryframework,andmoreintensiveuseof
incentivesatthesectorallevel.17Overall,thesereformsseektocreateamarketbasedsystem
offiscaldecentralizationinordertoharnessthebenefitsofmaximizingtheefficiencyoflocal
publicgoodsandimprovinginformationatthelocallevel,whileminimizingthecostsoffiscal
irresponsibility.
CaseStudySelection
Inhispaper,Inmandefinesgovernancealongthreeinstitutionaldimensionsnumber
ofprovincialgovernments(N>2forfederal;N=1forunitary),policyassignmentforthe
provisionofimportantgovernmentservicesbetweencentralandprovincialgovernments(A
closeto1forfederal;Acloseto0forunitary),andconstitutionallyprotectedprovincial
representationtothecentralgovernmentlegislature(R=1forfederal;0forunitary).Federal
andunitarygovernmentsmaybeeitherdemocraticordictatorial(D=1ifdemocratic,D=0if
dictatorial).

Inmanthencategoriesfederalgovernmentsashavingtwoormoreprovinces(N>2),
eachwithsubstantivepolicyresponsibilities(Acloseto1)andprovinciallyelected
representationinthecentrallegislature(R=1).Unitarygovernmentseitherlackpolitically
independentprovincialgovernments,orifprovincialgovernmentslackindependentpolicy
authority(A=0)orcentralgovernmentrepresentation(R=0).

ThefollowingsummarizesthemethodologyInmanusedtoassignvaluestocountries:
PolicyAssignment(A):annualpercentageofallgovernmentrevenueraisedby
provincial,state,andlocalgovernments,averagedovertheyears19651995.Mean
=.21(S.D.=.16).Acountryisclassifiedasanadministrativefederation(A=1)when
itsscoreranksintheuppertwoquartiles.
16
17
Ibid.
9
Democracy(D):Countryhasbeenconsidereddemocraticfor50percentormoreof
theyearsfrom19602000.Mean=.52(S.D.=.50).
CentralGovernmentRepresentation(R):Dejure,constitutionallybasedfederation

Toprovideameaningfulcontrastamongdifferentgovernancedimensions,thefollowing
sixcountrieswereselected.BrazilandArgentinaLatinAmericaslargestfederalrepublics
serveasthebenchmarkcaseoffederaldemocracy.Allothercasesdifferalongagovernance
dimensioninordertoprovideinsightaboutthedifferentialimpactofinstitutionalstructure.
Assignment(A):% Provincial Democracy(Yes=1, ChosenCases(GDP

ofrevenueassigned Representation(R) No=0) percapita)18
tolocales (Yes=1,No=0)

BenchmarkCases: 1(closeto1as 1 1 Brazil(10,073)
Federal/Democracy possible,inIV Argentina(16,080)
quartileaccordingto
Inmans
classification)
Case#1: 0(closeto0as 1 1 Venezuela19 (7,480)
Federal/Democracy, possible)
butlowprovincial
revenueassignment
Case#2: 1(closeto1as 0 1 Uruguay(11,969)
Administrative possible,inIV
Federal/Democracy quartileaccordingto
Inmans
classification)
Case#3: 1(closeto1as 1 0 Mexico20(11,369)
Federal/Dictatorship possible,inIII
quartileaccordingto
Inmans
classification)
Case#4: 0(closeto0as 0 1 Chile(12,811)
Unitary/Democracy possible)
18
GDP per capita data comes from 2006 estimates by the International Monetary Fund
19
Despite the fact that Hugo Chavez has concentrated the power of judicial and legislative branches and created
media restrictions, he still operates within a generally democratic framework. He was elected through free and fair
elections, and has not succeeded in making a blatant political move to radically undermine Venezuelan democratic
infrastructure. For example, Chavez acknowledged defeat on December 3, 2007 when voters rejected his public
referendum to change the constitution. The referendum would have overhauled term limits defined in the
constitution, placed more of the military under his control, permit media censorship in times of emergency, and
eroded the independence of the central bank. In addition, Chavez has to step down from power on January 2013.
20
Despite significant democratic reforms in Mexico over the past decade, Mexico is still categorized as a
dictatorship due to its long historical precedent of authoritarian rule and PRI dominance. Although the monopolistic
control of PRI was first challenged in the late 1970s, it was not until 1989 that the first non-PRI governor of a state
was elected. In general, democracy has been significantly entrenched in Latin American countries over the course of
the past two decades. According to the Economist Democracy Index (January 2007), no country in Latin America
received classification as an Authoritarian Regime. Mexico received a rating of 6.67, placing the country within
the Flawed democracy category.
10
BenchmarkCase:FederalDemocracyBrazil
Fromahistoricalperspective,Brazilenduredaseriesoftumultuouspoliticalchanges,
whichhasledtostrongdemocracyandfederalisminthemostrecentdecades.Followinga
militarycoupin1964,significantcentralizationoccurred,thusweakeningpreexistingfederal
institutions.Themilitarygovernmentcentralizeddistributionofgovernmentrevenueand
expenditures,andlimitedtherepresentationandautonomyofstategovernments.Inaddition,
thegovernmentalsoeliminatedimportantdemocraticchecks,includingthesuspensionand
repressionofthelegislatureandenactmentofpreferentialpoliciestostrengthenexecutive
control.21Withtheoustingofthemilitarygovernmentin1985duetosevererecessionand
civilianoutrage,Brazilembarkedonalongprocessofdemocraticconsolidation,
decentralization,andeconomicrecovery.Toprovideasystematiccheckonthepowerof
centralizedgovernment,the1988constitutionadoptedsignificantreformstoensurestateand
localrepresentation.
Dividedinto26statesandaFederalDistrict,witheachstateinturndividedinto5,500
municipalities,BrazilstripletieredgovernmentisregulatedbytheFederal1988Constitution.
Ingeneral,theconstitutionprotectssubnationalautonomybyallowingstatestoadoptitsown
constitutionanddirectlyelectitslegislatureandgovernorwithverylimitedinterferencebythe
federalgovernment.Similartothestates,municipalitiesdirectlyelecttheirowncouncilsand
mayors.Parallelingtherelationbetweenfederalandstategovernment,stategovernments
havelimitedabilitytocompelorprohibitactionsbymunicipalitiesintheirjurisdiction.22
AccordingtothemostrecentHandbookofFederalCountries,therepublicanregimein
Brazilhasbeenmarkedbytwogeneralcharacteristics:
1. AplebiscitarypresidentialisminwhichastrongPresidentissidedbyasymmetric,
bicameral,multiparty,andregionalist,legislativepowerandanindependentjudiciary

2. Afederativesystemwhichreproducesthepresidentialdivisionofpowersatthestate
levelandaccordsconsiderableconstitutionalautonomytostatesandmunicipalities
21
Samuels, Mainwaring. Strong Federalism in Brazil. Federalism and Democracy in Latin America. Johns
Hopkins University Press, 2004.
22
11
Fromafiscalperspective,Brazils1988constitutionexplicitlydividesuprevenues,
assigningaspecifictaxbasetoeachlevelofgovernmentandformingasystemoftaxsharing
thatredistributesrevenuesamonglevelsofgovernmentandregions.Overall,thecreationof
newtaxes,raisingexistingtaxes,andincreasingthetransferofFederalcollectedtaxestosub
nationalenhancedthefinancialcapabilitiesofstateandlocalgovernments.23Inparticular,in
formingthebroadbasedvalueaddedtax(ICSM),withratesfreelydeterminedbythestates,
theconstitutioneliminatedaseriesofstateexcisesoncommunications,fuels,electricpower,
minerals,andtransportation.Likewise,thegovernmenteliminatedfederalexemptionsand
restrictionsontheuseoffundsbystatesasameanstoreaffirmtherevenuesharingsystem.24
AsshownintheTable1,thefederalgovernmentshareoftotalexpenditureshaslargely
declinedsincethe1970sand1980swhentheBrazilremainedundercentralized,authoritarian
rule,droppingfrom68.2%in1980to59.9%mostrecently.
Therecentincreaseinfederalgovernmentshareoftotalexpendituresreflectsthe
tensionbetweendecentralizationandmacroeconomicstability,especiallyinlightofrecent
financialcrises.InBrazil,recentralizingchangesoccurredasanindirecteffectofthefederal
governmentsattempttoclampdownonhyperinflationin1994.Forexample,theRealPlanof
19931994forcedsubnationalgovernmentstoincreasetransparencyintheirexpenditures,
thusexposingthedebtsofstatebanks.Duetothepopularityoftheplan,stategovernments
receivedapublicmandatetokeepfiscalaccountabilityandreduceoverspending.25
23
Castanhar, Jos. Fiscal federalism in Brazil: historical trends present controversies and future challenges. VIII
Congreso Internacional del CLAD sobre la Reforma del Estado y de la Administracin Pblica. Oct 2003.
24
Diaz-Cayeros, Alberto. Federalism, Fiscal Authority, and Centralization in Latin America. Cambridge University
Press, 2006.
25
Eaton, Dicovick. Decentralization and Recentralization in Argentina and Brazil: The Menem and Cardoso
years. Decentralization in Asia and Latin America. Edward Elgar Publishing Limited, 2006.
12

Table1.FiscalDivisioninBrazil(19602000)
Share of Total Revenue Share of Total Expenditures

Year Central State Municipal Central State Municipal
1960 63.9 31.3 4.7 59.5 34.1 6.4
1965 63.8 30.9 5.9 54.8 35.1 10.1
1970 66.7 30.6 2.7 60.8 29.2 10.0
1975 73.7 23.5 2.8 68.0 23.3 8.7
1980 74.7 21.7 3.7 68.2 23.3 8.6
1985 72.8 24.9 2.4 62.7 26.2 11.1
1990 67.3 29.6 3.1 57.1 28.0 14.9
1995 67.2 28.0 4.8 56.3 27.5 16.2
2000 69.2 26.2 4.6 59.9 25.1 15.0
Source:Samuels,Mainwaring,StrongFederalisminBrazil,2004
Table2summarizessomekeysocialandeconomicindicatorsofBrazil,whichwillbe
usedasabasisforcomparisontootherLatinAmericancountries.Asevidencedinthedata,
Brazilhasenjoyedthebenefitsofprudentmacroeconomicmanagementinrecentyears,with
credibleinflationtargetingandconsiderableimprovementinitsexternalposition.In2000,
BrazilapprovedtheFiscalResponsibilityLaw,whichbroadlyrecognizestheimportanceoffiscal
rulestoaccomplishnationaleconomicobjectivesandthetechnicalmacroeconomicpreceptsto
reachfiscaltargets.AccordingtoAfonsoanddeMello,theFiscalResponsibilityLawformsthe
basisofarulesbasedsystemofdecentralizedfederalismandhasbeenmotivatedbythe
recognitionthatmarketcontroloversubnationalfinancesshouldbestrengthenedbyfiscal
rulesandappropriatelegalconstraints.26Brazilhaslargelyrecoveredfromtheeconomicstress
of20022003,withrealGDPgrowthreaching3.5%in2006.Toenhanceitsgrowthpotential,
Brazilwouldrequirefurtherinstitutionalcapacitydevelopment,improvementsintheefficiency
ofthepublicsector,andsustainedfiscaldiscipline.27Inaddition,afterinstitutingsignificant
democraticreformsaftertheoustingofthecoup,Brazilhasestablishedastrongdemocratic
traditionthathasleadtoimprovingperformanceincivilandpoliticalrights.Electionsare
deemedfreeandfairbyindependentobservers,andBrazilianshavevotedfivetimesinnational
electionssincetherestorationofcivilruleinthemid1980s.28
26
27
Brazil: Economic Overview. Country Watch. 2007.
28
U.S. Congratulates Brazil on October 29 "Free, Fair" Election US Department of State. October 2006.
13
Table2.KeySocialandEconomicIndicatorsofBrazil(19702006)
Brazil 1970-1974 1975-1979 1980-1984 1985-1989 1990-1994 1995-1999 2000-2006
GDPgrowth(annual%) 11.0 5.9 1.4 4.5 1.3 2.0 3.1
GDPpercapita(constant2000US$) 2,390.6 3,125.5 3,262.8 3,508.8 3,379.5 3,642.9 3,829.0
GINIIndex NA NA 57.7 59.3 60.3 59.6 58.1
Householdfinalconsumptionexpenditure(percapita) 1,398.6 1,811.7 2,148.3 2,092.2 2,047.3 2,356.9 2,438.1
Immunization,DPT(%ofchildrenages1223months) NA NA 53.6 59.2 72.8 85.2 97.3
Improvedsanitationfacilities(%ofpopwithaccess) NA NA NA NA 71 73 74.5
Improvedsanitationfacilities,rural(%ofruralpopwithaccess NA NA NA NA 37 37 37
Lifeexpectancyatbirth,total(years) 59.3 61.6 63.0 64.8 66.5 68.5 70.4
Povertyheadcountratioat$2aday(PPP)(%ofpopulation) NA NA 34.1 29.4 27.9 22.4 21.8
Urbanpopulation(%oftotal) 58.16 63.98 68.96 72.7 76 79.16 82.98
FreedomHousePoliticalRights 5 4 3.4 2.2 2.2 2.4 2.4

FreedomHouseCivilRights 5 4.6 3 2.2 3.4 4 2.8
TransparencyInternationalCorruptionPerceptionsIndex NA NA 4.67 3.51 3.655 3.94 3.5
HeritageFoundationIndexofEconomicFreedom NA NA NA NA NA 53.1 62.0
Source:WorldBankDevelopmentIndicators,FreedomHouse,TransparencyInternational,
HeritageFoundation
Overall,globalizationhasposedasignificantchallengetoBrazilianfederalismthrough
threefundamentalprocesses.First,financialderegulationhassignificantlyincreasedforeign
currencyandinterestratespeculation,thusreducingoverallgovernmentabilitytomanage
nationalmacroeconomicpolicies.Second,duetodifferencesinlaborcosts,fiscalload,and
infrastructure,foreigndirectinvestmenthaspenetratedsubnationalregionsunevenly.Third,
thehomogenizationofeconomicpoliciesinresponsetothedebtcrisisofthe1980shasopened
nationaleconomiestointernationaltrade,thusweakeningtheinfluenceofthestateandsub
nationalactors.Asaconsequence,Brazilfacestheparadoxinwhichglobalizationinduces
centralization,butthecentralizedgovernmentlosessignificantinfluenceastheeconomy
continuestoliberalize.29
Implications
Inperspective,federalismplayedanimportantroleinstrengtheningdemocratic
institutionsafteralongperiodofmilitaryrole.Theconstitutionalstructureofdemocratic
federalismprovidedanimportantcheckongovernmenttoensurerepresentationatlocallevels,
whichmilitaryrulehadsuppressed.Federalismalsoprovidedanessentialconstrainton
presidentialorexecutivepoweramechanismtopreventpoliticalrightsabusesthathad
occurredundermilitaryrule,suchasthesuspensionofthelegislature,purgingofelected
officialswithoutapproval,andunlimitedbudgetarycontrolbytheexecutive.30Simultaneously,
29
Grau, Eros Roberto. Brazilian Federalism under the Pressure of Economic Globalization Federalism, rule of law,
and multi-culturalism in Brazil. Institute of Federalism Fribourg Switzerland. Volume 38. 2001.
30
14
federalismempoweredthecivilrightsofcitizensbystrengtheningdemocraticinstitutionsat
themunicipallevelandincreasingtheabilityofcitizenstoparticipateinlocalpolitics.For
example,SectionIIoftheFederalConstitutionof1988enshrinesthecivilrightsofindividuals
anexampleofthereinforcingrelationshipbetweendemocracyandfederalism,inwhich
federalismprovidesthestructuretoenhancetheprotectionofrightsessentialtodemocracy.31
Unsurprisingly,theFreedomHousescoresofBrazilfromthemid1980sonwarddemonstratea
markedimprovementanexampleofdemocratizationmutuallyreinforcedbyfederalreform
andpoliticaldecentralization.FederalisminBrazil,however,hasalsoincreasedpolitical
fragmentationasincreasedspaceforcompetitionweakenedthepoweroflargepoliticalparties.
Currently,Brazilhasanestimatedthirtypoliticalparties,nonewithamajority,although90%of
electedrepresentativesbelongtothesixmainparties.32Asaresult,negotiationsandobtaining
consensusoncontentiouspolicieshasoftenprovendifficult,resultinginstalledgovernment.
FederalismseffectonBrazilseconomicperformance,however,remainsmuchmore
ambiguous.AsBrazilshistoryattests,variousinstitutionalfactorsinfluencetheabilityof
federalismtoaffectcentralgovernment.ComparingBrazilianfederalismfromthe1980sto
early1990saftertheinitialtransitiontociviliangovernmenttofederalisminthelate1990s
undertheCardosoregimerevealsimportantinsightsabouttheimpactoffederalismon
economicperformance.Intheearly1980s,federalismconstrainedtheabilityofthepresident
toenactmuchneededeconomicreforms.Especiallygiventhehighdegreeofpolitical
fragmentation,obtainingpoliticalconsensustosupportcomprehensivereformsproveddifficult.
Asaresult,statedebtstofederalgovernmentburgeoned,stategovernmentsstalledmuch
neededmacroeconomicstabilizationpolicies,33andinstitutionalinertiaresultingfromnew
layersofbureaucracycreatedobstaclesforeconomicresiliencyandflexibility.Forexample,
newlyempoweredstatesexercisedfiscalpowersirresponsibly,whichimpededthecentral
governmentsabilitytoreduceBrazilsinternaldebtandestablishmacroeconomicstabilityan
exampleofthechallengesoffirstgenerationfiscaldecentralization.
FederalismundertheCardosoregime,however,differeddramatically.Bymanagingto
obtainmultipartysupportandovercomingthedivisivenatureofpoliticalfragmentation,
CardosocreatedcoherencyandconsensusintheBraziliangovernment.Incomparisontothe
31
Constitution of Brazil. <http://www.v-brazil.com/government/laws/titleII.html> Accessed: April 19, 2008
32
Pires-O'Brien, Joaquina. Brazil under Labor Government. Contemporary Review, Sep 2004
33
15
earlierperiod,Cardosomanagedtocontrolinflationandimprovemacroeconomicstabilitywith
broadsupportfromCongress,whichpassedseveralimportanteconomicreforms.Since
Cardososregimecontrolledover70%oftheseatsintheChamberofDeputiesand80%ofthe
seatsintheSenateduringhisfirstterm34,Cardosohadthepoliticalcapitalandsupporttowin
negotiationswithstateactors,eveninthepassingofvariousconstitutionalamendmentsand
thecurtailingofstatedebt.Illustratingthecomplexbargaininggamethatfederalismcreates
betweencentralandsubnationalactors,therelationshipbetweenfederalismandeconomic
performanceinBrazildependedonthepoliticalcontextandvariousinstitutionalvariablesin
constantflux.
BenchmarkCase:FederalDemocracyArgentina
Increatingatheoreticalframeworkfortheuniversaloriginsoffederalism,WilliamRiker
developedthetheoryofthefederalbargain,inwhichconstituentunitsofafederationtrade
sovereigntyforsecurityandmilitarypower.UnderRikerstheory,thetwonecessary
preconditionsinvolve:1)agroupofindividualpolitiesexist,allwithstrongidentitiesand
substantialsovereignty,2)asagrouptheyperceiveexternalthreats,whichcouldconceivably
bemollifiedunderafederation.35
AccordingtoGibsonandFalleti,however,Rikerstheoryfailstotakeintoaccountthe
uniquegeopoliticalconditionsthatledtotheArgentinefederation.Althoughinternationalwars
andsecuritythreatsexisted,theydidnotoccurcontinuously,applyconsistentlytoall
constituentelementsofthefederation,orcoincidewiththetwomajorfederalmilestonesthe
1931ArgentineConfederationPactandtheconstituentassemblyof1853(inaugurationofthe
ArgentineFederation).Rather,Argentinefederalismemergedasaresponsetointerprovincial
conflictbetweencentralizersandperipheralizers.36
Toaddresstheissueofinterprovincialconflict,the1853Argentineconstitution
establishedarepublican,representative,andfederalformofgovernment,institutingaclear
divisionofpoweramongtheExecutive,Legislative,andJudicialbranches.Inaddition,the
Constitutionexplicitlyprotectstheautonomyofprovincialandmunicipalgovernments.ArticleI
oftheconstitutionproclaimstheestablishmentofafederalrepublicanformofgovernment,
34
Ibid.
35
Stepan, Alfred. Arguing Comparative Politics. Oxford University Press, 2001.
36
Gibson, Falleti. Regional Conflict and the Origins of Argentine Federalism. Federalism and Democracy in
Latin America. The John Hopkins University Press, 2004.
16
withArticleVassertingthateachprovincewouldenactitsownconstitutioninaccordanceto
theprinciplesoftheNationalConstitutioninreturnforthelatitudetofullyexerciseitsown
institutionsindependently.InSection14b,theconstitutionalsoexplicitlyendowsnationaland
provincialentitieswithfinancialandeconomicautonomytoenactsocialpolicies.Most
notably,Section123affirmsthateachprovinceenactsitsownConstitution,ensuring
municipalautonomyininstitutional,political,administrative,economic,andfinancial
aspects.37
ThroughoutArgentinehistory,theprinciplesofdecentralizationintheConstitutionhave
enduredvariousperiodsofsuspension.Forexample,duringthepopulistPeronistera,
centralizationincreasedwithfederalrevenuecollectionandspending,thoughtheprovinces
benefitedfromtheexpandedlargesseofthefederalgovernment.In1949,thefederal
governmentraisedtaxesfrom1.5%to8.0%,thusprovidingasubstantialwindfallofrevenues
toregionalgovernments.Infact,CayeroscontendsthatPernmaintainedhispopularitywith
provincialofficialsbykeepingthefederalbargain.Ontheotherhand,Pernharmonizedmany
regionalsocialandpublicworksprogramsunderhisFiveYearPlanandthetotalrevenueshare
transferredtoregionalgovernments,approximately20%,remainedthesameasbefore.Most
notably,duringhissecondadministration,Pernadoptedareformthatestablishedthattaxes
earmarkedforinvestmentandpublicworkswithanationalimpactwouldbeexcludedfromthe
totalrevenuepoolavailablefortheprovinces,eventhoughthemoneywouldeventuallybe
spentontheprovinces.Inessence,thisimportantreformlimitedthediscretionaryspendingof
provincialgovernmentsinfavorofnationalaction.38Whenthemilitarycoupdisposedofthe
Peronistgovernment,centralizationfurtherincreased,especiallysincethehierarchicaland
authoritarianrulereducedthelevelofprovincialautonomy.Hence,theseriesofmilitary
governmentsenhancedthecentralizationthathadstartedtooccurunderthePeronist
government.39
Sincetheoustingofmilitaryrulein1983,Argentinahasgraduallyincreasedthelevelof
fiscaldecentralization.Asaforementioned,theconstitutiondirectlymandatessubnational
governmentstoprovidethemajorityofsocialexpendituresandeconomicinfrastructure,from
37
Constitution of Argentina. Government of Argentina. Accessed: April 1, 2008.
<www.argentina.gov.ar/argentina/portal/documentos/constitucion_ingles.pdf>
38
Cayeros, Alberto. Federalism, Fiscal Authority, and Centralization in Latin America. Cambridge University Press,
2006.
39
Gustafson, Lowell. Factionalism, Centralism, and Federalism in Argentina Publius, Vol. 20, No. 3. Summer
1990. pp. 163-176
17
education,healthservices,andwelfaresystemstoroads,ports,andthemanagementofnatural
resources.Nevertheless,thenationalgovernmentplaysanimportantregulatoryrolein
overseeingtheprogramsandpreservingabaselineofquality,oftenintheformof
supplementingthepoorestprograms.Asaconsequenceofconstitutionalstructure,Argentina
hasoneofthemostdecentralizedpublicsectorsinLatinAmerica,inwhichsubnational
governmentsaccountfornearly50%oftotalconsolidatedpublicsectorexpendituresandmore
thantwothirdsofpublicsectorexpenditures,excludingpensions.40
Table3.KeySocialandEconomicIndicatorsofArgentina(19702006)
Argentina 1970-1974 1975-1979 1980-1984 1985-1989 1990-1994 1995-1999 2000-2006
GDPgrowth(annual%) 3.7 2.1 (0.1) (1.4) 6.8 2.3 2.8
GINIIndex NA NA NA 44.5 45.4 49.2 52.1
Householdfinalconsumptionexpenditure(percapita) 7,400.9 7,222.3 NA NA 8,353.4 8,781.6 8,197.8
Immunization,DPT(%ofchildrenages1223months) NA NA 52.6 73 82.2 82.2 84.5
Improvedsanitationfacilities(%ofpopwithaccess) NA NA NA NA 81 86 90
Improvedsanitationfacilities,rural(%ofruralpopwithaccess NA NA NA NA 45 59 78.5
Povertyheadcountratioat$2aday(PPP)(%ofpopulation) NA NA NA 2.0 5.8 10.1 18.2
Urbanpopulation(%oftotal) 79.74 81.76 83.74 85.8 87.48 88.6 89.7
FreedomHousePoliticalRights 4 4.4 4 1.8 1.4 2.2 2.1

FreedomHouseCivilRights 2.5 4.8 3.6 1.4 3 3 2.3
HeritageFoundation
AsTable3illustrates,Argentinahasenduredavolatileeconomichistory.Inthe1990s,
ArgentinasGDPgrewtremendouslyatanaveragerateof6.8%between1990and1994.Bythe
late1990s,however,inflexibleeconomicpoliciesandafailuretoadoptessentialstructural
reformsleftthecountryvulnerabletoexternalshocks.41Inordertocombatinflation,Argentina
hadadoptedafixedexchangerateregime,simultaneouslyliberalizingmarkets.Nevertheless,
governmentdebtcontinuedtoescalateassocialexpendituresincreasedandasthe
governmentadoptedanimportsubstitutionpolicytopromoteindustrialization.In2001and
2002,currencyspeculationandmassivewithdrawalsofcapitaldroveArgentinatonear
economiccollapse,inwhichGDPregisteredanegativegrowthrateof4.4%and10.9%
respectively.Coupledwithskyrocketinginflationandanerosionofcurrencyvalue,the
governmentdeclaredbankruptcyonforeigndebt.Since2003,however,Argentinahaslargely
recoveredasconsumerandinvestorconfidenceslowlyimproved.42Asaconsequence,
40
Tommasi, Saiegh, Sanguinetti. Fiscal Federalism in Argentina: Policies, Politics, and Institutional Reform.
Economa, Journal of the LACEA. Spring 2001.
41
Argentina: Economic Overview. Country Watch. 2007.
42
Ibid.
18
Argentinahasexperiencedstronggrowth,thoughcontrollinginflationandinstitutingstructural
reformsremainachallenge.SimilartoBrazil,Argentinasrightsperformancehasimproved
substantiallywiththeabdicationofthemilitaryregimein1983andtherestorationof
democraticaccountability.
Implications
SimilartoBrazil,returningtothefederalconstitutionof1853afteralongperiodof
militaryrulerepresentedaconsciousefforttodiffusepowerthroughafederalarrangement.
Politicaldecentralizationnotonlyenhancedthepowerofregionalgovernors,butgave
individualsadditionalvoiceandrepresentationthroughincreasedindependencefromthe
centralgovernment.43Consequently,politicalrightssteadilyimprovedasindividualsand
variouscivilsocietyorganizations,suchasneighborhoodassociationsandhumanrights
organizations,increasedtheirpublicpresence,demandingchangesthatthecentral
governmentssometimesdidnotapprove.Likewise,fiscalandadministrativefederalism
increasedcitizensaccesstobasicneeds,especiallysincedecentralizationofimportantsocial
welfareprogramsimprovedoverallaccess.Asempiricalsupport,Habibi,etal.conducteda
studyonthesocialimpactofdecentralization,inwhichtwoindicatorsofhealthandeducation
wereregressedontwodecentralizationmeasuresinArgentineprovincesfrom19701994.The
studyconcludedthatdecentralizationpositivelyinfluencestheeffectivenessofpublicpolicy
directedtowardsanimprovementinthelevelofhumandevelopment.Accordingtotheauthors,
decentralizationreducedintraregionaldisparitiesandincreasedonaggregatethelevelof
humandevelopmentintheareasofhealthandeducation.44Hence,administrativeandfiscal
federalismhascontributedtoimprovedsocialperformanceinArgentina.
ComparingtheMenempresidencyoftheearly1990stoearlieradministrationsreveals
insightsabouttheimpactoffederalismanddecentralizationoneconomicperformance.
AlthoughMenemsgovernmentspurredaseriesofreformsthatstrengthenedthelevelof
responsibilityofregionalgovernments,suchasintroducingtheDecentralizationBillof1991to
decentralizeeducation,theadministrationcentralizedauthorityoftaxrevenuesasameansto
43
Maki, Andrew. Decentralization and Political Participation: Argentina and Chile in Comparative Perspective.
Connecticut College, 2006
44
Habibi, Huang, Miranda, Murillo, Ranis, Sarkar, Stewart. Decentralization in Argentina. Economic Growth
Center Working Paper, Yale University, 2001.
19
maintainastable,liberalagendaatthenationallevel.45Unlikehispresidentialpredecessors,
Menemmanagedtoevadetheconstraintsofthe1987CoParticipationlaw,whichwouldhave
forcedalevelofrevenuedecentralization.Variousexpertsarguethatwithoutcontrolover
provincialrevenues,Menemwouldnothavethecapacitytoimplementneoliberalreformssuch
asprivatization,tariffliberalization,andderegulation.Increasingcentralauthorityinthe
economy,however,hasyieldedmixedresults.Intheshortterm,Menemsadministration
reducedinflationthroughapeggedexchangerate,restoredforeigninvestorconfidence,and
reinedinrampantmacroeconomicissuesthatearlieradministrationshadstruggledwith.46
DespiteArgentinasstronggrowthinthe1990sandseemingimprovementinvarious
macroeconomicindicatorsintheshortterm,thecountryborderedonthevergeofeconomic
collapsein20012003,sincegreaterdecentralizationdidnotleadtofundamental
improvementsinmacroeconomicresponsibilityandspendingrestraint.By2000,anestimated
40%ofArgentine'spopulationlivedbelowtheofficialpovertylinedespitethecountrysearlier
wealth.47
WhencomparingArgentinatoBrazil,theotherlargefederalrepublicinLatinAmerica,it
appearsthatdecentralizationandfederalisminbothcountriescontributedtostrengthening
democraticinstitutions,improvingpoliticalandcivilrights,andincreasingaccesstopublic
goods.Economicresults,however,illustratemixedconclusions.Initially,federalismand
decentralizationimpededmacroeconomicstabilityinBrazil,especiallysincesubnationalactors
oftenenactedpolicieswithoutappropriatefiscalconstraintandCongressblockedimportant
macroeconomicreformsintroducedbytheexecutivebranch.Effectivepoliticalbargaining
underCardososregime,however,revealedthatimportanteconomicreformscouldbeenacted
underafederalgovernancestructureifpartyalignmentoccurs.Insomesense,centralizing
congruencybetweenofficialsatdifferenttiersandbranchesofgovernmentprovedessential.In
contrast,inArgentina,althoughcentralizationoftaxrevenuesandfiscalpowerinthecentral
governmentledtoinitialmacroeconomicimprovementincomparisontoearlier
administrationsthathadagreaterleveloffiscaldecentralization,theresultswereshortlivedas
neoliberalreformsfailedtodeliversustainedbenefits.
45
Eaton, Kent. Decentralization, Democratization and Liberalization: The History of Revenue Sharing in Argentina,
1934-1999. Journal of Latin America. Vol 33, 1-28
46
Nash, Nathaniel. Argentine President Clears Hurdle to Second Term. New York Times. 16 November 1993.
47
Overcoming Human Poverty. UNDP. <http://hdr.undp.org/en/media/assignment_poverty.pdf>
20
Case#1:Venezuela(Federal/Democracybutlowprovincialrevenueassignment)
Comprisedof22states,onefederaldistrict,and72islanddependencies,Venezuelahas
alonghistoryoffederaltraditions.OnDecember21,1811,theGeneralCongressofVenezuela
adoptedthefirstConstitutionofanindependentLatinAmericanstate.Modelingthefederalist
principlesoftheUSConstitution,Venezuelacreatedsevencolonialprovinces,allofwhichhad
neverpreviouslybeenunderonegoverningbodybefore.48Enablingtheunionofindependent
states,theConstitutioncontainedthepreceptsoffederalism:thepredominanceofstate
sovereigntyandrepublicanism,supremacyoftheConstitutionasarepresentationofthewillof
thepeople,separationofpowers,territorialdistributionofpower,anddeclarationofcitizens
andstatesrights.49
Nevertheless,federalistprinciplescameunderchallengewhenaseriesofcivilwars
resultedinthedissolutionoftheFirstRepublicin1812.Infact,SimnBolivartheLiberatorof
SouthAmericaattributedthefailureoftheVenezuelanrepublictofederalism.Topromote
solidarity,Bolivarintroducedcentralism,evidencedintheconstitutionalreorganizationof
Venezuelain1819andinitsdisappearanceandintegrationintotheRepublicofColombiain
1821.50Bythefirsthalfofthe20thcentury,consolidationoftheNationalStatebyautocratic
regimesreinforcedcentralizingtendencies,almostprovokingthedisappearanceofterritorial
distributionofpowerandautonomy.51
SimilartotheevolutionofotherLatinAmericancountries,democratizationinthelatter
halfofthe20thcenturyaccompaniedareturntofederalistprinciples.InresponsetothePacto
dePuntoFijoof1958,anagreementofthethreeprincipalpoliticalpartiestoguaranteethe
consolidationofVenezuelandemocracy,the1961constitutionreestablishedpolitical
federalism.Althoughprovincesgainedgreatervoice,thepresidentretainedtheprerogativeto
appointstategovernorspersonally,reflectingthepartiesbeliefthatnationaldemocratic
consolidationneededtoprecededemocratictransitionattheprovinciallevel.Althoughthe
Senateguaranteedequalterritorialrepresentationtothestateswithadditionalparty
provisions,theconstitutiondidnotassignimportantfiscalandadministrativeresponsibilitiesto
48
Brewer-Caras, Allan. Problems of the Centralized Federation and Sub-national Constitutionalism in Venezuela.
Center for State Constitutional Studies. March 2004.
49
Venezuela. Handbook of Federal Countries. Forum of Federations, 2002.
50
Ibid.
51
Brewer-Caras, Allan. Problems of the Centralized Federation and Sub-national Constitutionalism in Venezuela.
Center for State Constitutional Studies. March 2004.
21
thestates.Withlimitedabilitytoraiserevenuethroughtaxesorsustainadministrative
responsibilities,thestategovernmentsdependedonnationalgovernmentsforsupport.
Nonetheless,theconstitutionassignedeachstatefiscalresourcesbyanautomaticbudget
allocationequivalenttoatleast15%ofthenationsincome,ofwhich30%wasassignedequally
andtheremaining70%wasbasedonpopulation.52
Bythelate1980s,however,increasingcompetitionandelectoralopportunitiesatthe
subnationallevelandthereelectionofgovernorsandmayorsprofoundlytransformedthe
politicalsystem.Aspoliticaldecentralizationadvanced,politiciansbeganbuildingtheircareers
inmunicipalitiesandstategovernment,risingfromthesubnationaltothenationallevel.To
gainsupportfrompoliticalparties,successfulpoliticiansneededtodemonstrative
administrativeandpoliticalsuccessatthesubnationallevel,incentivizingagreaterimportance
tolocalpoliticsandsupportofregionalinitiatives.By1991,thetransformationofthepolitical
systemempoweredregionalactorstocallfortheexpansionoffiscaldecentralization.Taking
advantageofthechangingenvironment,governorsandmayorscollectivelyorganizedin1989
topressureCongresstotransformthestructureofrevenuesattheregionalandlocallevels.53
InDecember1999,anewconstitutionreplacedthe1961Constitution,primarily
promotedbycurrentpresidentHugoChvez.Asthefirstconstitutionapprovedbypopular
referenduminVenezuelanhistory,theConstitutionsignificantlychangedthestructureof
Venezuelangovernmentandenshrinedaseriesofbasicrightsclaimsofthepeople,including
freeeducationandhealthcare,environmentalstewardship,andprotectionoftherightsof
minoritiestoupholdtheirowncultures.With350articles,theConstitutioncomprehensively
addressesaseriesofcomplexsocialandpoliticalissues.Article4oftheConstitutiondeclares,
TheBolivarianRepublicofVenezuelaisadecentralizedFederalStateonthetermssetforthin
thisConstitution,governedbytheprinciplesofterritorialintegrity,cooperation,solidarity,
attendanceandsharedresponsibility.Inaddition,Article136assertsthatPublicPoweris
distributedamongMunicipalPower,thatoftheStatesPowerandNationalPower.National
PublicPowerisdividedintoLegislative,Executive,Judicial,CitizenandElectoral.Eachofthe
52
Penfold-Becerra, Michael. Federalism and Institutional Change in Venezuela. Federalism and Democracy in
Latin America. Johns Hopkins University Press, 2004.
53
Ibid.
22
branchesofPublicPowerhasitsownfunctions,buttheorganschargedwithexercisingthe
sameshallcooperatewithoneanotherinattainingtheendsoftheState.54
Inpractice,however,theVenezuelanfederationremainsrelativelycentralized,inwhich
stateshavearatherminimalroleindevelopingpublicpolicies.Despitetheprinciplesof
federalisminthe1999constitution,the1999constitutionreflectsamuchgreaterdegreeof
centralizationthanthatofthe1961constitution,especiallyinfiscalpolicy.Inregardsto
taxation,theConstitutionreservesthepoweroftaxationtothefederalgovernmentonly
stateandlocalgovernmentshaveprovidenceonlyoverofficialstationaryandstamps.Article
167articulatesthatstatescancollecttaxesonlywhentheNationalAssemblyexpressly
transfersthepowerofaspecificformoftaxationbylaw,whichhasnotyetoccurred.55Under
thecurrentNationalBudgetlaw,statesclaimaminimumof15%toamaximumof20%oftotal
nationalincome.Tosupplementincome,stateswithhydrocarbonreservescanclaimadditional
economicprivilegesormakeadditionalclaimsfromnationalfunds,suchasthe
IntergovernmentalFundforDecentralizationortheInterstateCompensationFund.56
Inaddition,the1991constitutionfailstoenumeratesubstantivecompetenciesand
responsibilitiesofthesubnationalgovernmentsinimportantmattersofsocialandeconomic
policy.ByeliminatingtheSenate,Venezuelahasadoptedafederalgovernmentinname,but
withoutafederalchamberinwhichstateshaveequalrepresentation.Inaddition,the
constitutionexplicitlyassertsthatdelegatestotheNationalAssemblyoughttorepresenttheir
ownprinciplesandconscienceaboutthegreaternationalgood,abovethemandatesand
instructionsoftheirrepresentativestate.

AccordingtoDiazCayeros,VenezuelaisthemostcentralizedoftheLatinAmerican
federations,ofwhichthecentralizedfiscalbargaininvolvestheabdicationbythestatesofall
taxauthorityandthevirtualabandonmentoffederalism.Coupledwithlackofstrongstate
representationandpower,thefederalgovernmentcouldeschewpromisedtransferstostates.
Especiallysincethefederalgovernmentcontrolsoilrevenue,thestatemaintainsstrong
54
Constitution of the Bolivarian Republic of Venezuela. Australia Venezuela Solidarity Network. Accessed: April
10, 2008. <http://www.venezuelasolidarity.org/?q=node/53>
55
56
Venezuela. Handbook of Federal Countries. Forum of Federations, 2002.
23
discretioninfundallocation,whichhasbredredistributiveallocationpoliciestosmallstatesat
theexpenseoflarger,moreproductiveregions.57
Table4.KeySocialandEconomicIndicatorsofVenezuela(19702006)
Venezuela 1970-1974 1975-1979 1980-1984 1985-1989 1990-1994 1995-1999 2000-2006
GDPgrowth(annual%) 3.9 4.0 (1.8) 1.5 4.0 0.9 4.2
GINIIndex NA NA 55.8 48.8 41.7 49.2 46.1
Immunization,DPT(%ofchildrenages1223months) NA NA 50.8 55.4 64.8 60 75.5
Improvedsanitationfacilities(%ofpopwithaccess) NA NA NA NA NA 68 68
Improvedsanitationfacilities,rural(%ofruralpopwithaccess NA NA NA NA NA 48 48
Povertyheadcountratioat$2aday(PPP)(%ofpopulation) NA NA 8.9 6.6 5.1 15.1 14.8
FreedomHousePoliticalRights 2 1.4 1 1 1.8 2.4 3.3

FreedomHouseCivilRights 2 2 2 2.2 3 3.2 4.3
HeritageFoundation
Table4illustratessomecleareconomicandsocialindicatorsforVenezuela.Dependent
onhydrocarbonsales,whichaccountforapproximately80%oftotalexportsandhalfofthe
nationalgovernmentsrevenue,Venezuelaseconomyremainssubjecttocyclesofboomand
bust.58SinceGDPgrowthandinvestmentcorrelatestronglywithworldoilprices,Venezuela
facesthesignificantchallengesofeconomicdiversification,controllinginflationintimesofhigh
oilprices,andprovidingsustainablelongtermgrowth.Mostrecently,realGDPgrewby10.3%
in20052006and8.0%in2007,reflectingthebenefitsofthefiscalwindfalldrivenbyhighoil
prices,whichinturnhavefedprivateconsumptionandfixedinvestment.59
Giventherecentadministration,democraticaccountabilityhasweakened,asevidenced
intheFreedomHouseindicators.HugoChavezhaspushedforvariousreformsthatsignificantly
concentratepowerintheexecutivebranch,whilelimitingdecentralizationandrepresentation
ofsubnationalgovernments.Late2007,Chavezannouncedhisintenttoamendthe1999
constitutionwithproposalssuchas:abolitionoftermlimitsforpresident,redefinitionof
privatepoverty,removaloftheautonomyoftheCentralBankofVenezuela,andintroductionof
communalcouncilsatthelocalgovernmentlevel.60Thepublic,however,handedChaveza
57
Diaz Cayeros, Alberto. Federalism, Fiscal Authority, and Centralization in Latin America. Cambridge University
Press, 2006.
58
Alvarez, Cesar. Venezuelas Oil-Based Economy Council on Foreign Relations.
<http://www.cfr.org/publication/12089/> November 2006.
59
Economic Performance: Venezuela. Country Profile 2008: Venezuela. The Economist, 2008.
60
Constitutions, institutions, and administration. Country Profile 2008: Venezuela. The Economist, 2008.
24
defeatinDecember2007byaclosemarginof2%.Nevertheless,variousinstitutionsofthe
1999Constitutionhavebeenweakenedwiththeconcentrationofpowerintheexecutive
branch,especiallyinthejudicialsystem.Bypassingimportantchecksandbalances,theChavez
administrationdissolvedtheFirstAdministrativeCourt,whichhandlescasesbroughtbycitizens
againstthestate.TheadministrationhasalsoexpandedthesizeoftheSupremeCourtand
reducedthebarriersofjudicialappointment.
Implications
UnliketheotherLatinAmericancountriesinthiscasestudy,Venezuelahasslowly
increasedthelevelofcentralization,movingawayfromitslongfederaltraditionsmost
notablyintherecentChavezadministration.Testifyingtotheconstanttensionbetween
centralizationanddecentralizationinafederaldemocracy,thecaseofVenezuelaillustratesthe
difficultyofcategorizingthegovernmentstructureacrossvariousinstitutionaldimensions.
Althoughthe1999ConstitutiondeclaresVenezuelaafederation,inpractice,thegovernment
hasprogressivelycentralizedrevenuesandreducedrepresentationandresponsibilitiesofthe
subnationalgovernmentsinsocialandeconomicpolicy.
AsTable4ofkeysocialandeconomicindicatorsreveal,politicalandcivilrightshave
erodedovertime.UnliketheotherLatinAmericancountriesinthisstudy,Venezueladidnotgo
throughamilitarydictatorshipthecountryhadremainedademocracyinthe1970s,when
mostLatinAmericancountriesfellundermilitaryrule.1958markedthearrivaloffull
democracyinVenezuela,withtheoverthrowofPrezJimnezsdictatorship.Hence,Venezuela
hadamuchmorestabledemocracyandprotectionofcivilandpoliticalrightsinthe1980s
comparedtoothercountries.Recently,however,HugoChavezsregimeanditsactsofpolitical
suppressionhavereducedtheoveralllevelofdemocraticaccountabilityinVenezuela.
Althoughtheintuitiveconclusionmaybetoassociateincreasingcentralizationandthe
underminingoffederalinstitutionswithdeteriorationinrightsperformance,thisconclusion
failstocaptureimportanthistoricalfacts.Certainly,althoughChavezsinitiativestoconcentrate
powerintheexecutivebranchreflectsimultaneouserosioninfederalinstitutionsandpolitical
rights,variousexpertshavearguedthatfederalismitselfcausedthefragmentationofpolitical
partiesthatledtopopulistpresidencies,suchasthatofChavez.
25
AccordingtoPenfoldBecerra,theenhancedpoliticalcompetition,thedivisionbetween
regionalandnationalelections,thereelectionofgovernorsandmayors,andanincreasein
theirfinancialautonomythroughnationalpartyleadersallcharacteristicaspectsof
federalismcontributedtothefragmentationofthepartysystemandtothepersonalizationof
thevote.Withintensifiedpoliticalcompetitionthatfederalismprovides,governorsandmayors
tookadvantageofwindowsofopportunitytoenhancetheirownpoliticalpowerandweaken
thepowerofpartyleaders.Certainly,manyofthenationalpoliticianswhoatfirstsupported
directelectionofgovernorsandmayorsin1989animportantfederalreformdidnot
envisagetheemergenceofanewpoliticalsystemthatwouldunderminethetraditionalpower
structureofpartypolitics.Nevertheless,asaccountability,transparency,andpolitical
competitionincreased,personalizationofthevoteunderminedentrenchedpowers.Taking
advantageofthepowervacuum,politicaloutsiders,suchasChavez,gainedaccesstoregional
andlocaloffices,aswellastothepresidencyandthenationallegislature.61Coupledwiththe
concentrationoffiscalpoweratthecentralauthority,suchpopulistleadershavegreatlatitude
toenactpoliciesthatpotentiallyunderminedemocraticrule,especiallygiventhedependence
ofstategovernmentsonfederalrevenuesandthehighlevelofdiscretionaryfiscalpower.62
Hence,federalismhasaratherambiguouseffectondemocraticaccountabilityand
rightsperformanceinVenezuela.Althoughthecurrentweakeningoffederalinstitutionsunder
theChavezregimehasdecreasedrightsperformance,federalismitselfhadcontributedtoa
newpoliticalcontextthatfacilitatedtheriseofsuchpopulistleaders.Nevertheless,despite
Chavezssuccessinincreasingpresidentialpower,heremainsunabletounderminethefull
federalsystem.Despitetheeliminationofthesenate,directelectionofgovernorsin23states
andmayorsinmorethan300hundredmunicipalitiescheckhisoveralllevelofpowerand
counterbalancepresidentialprivilegeintheexecutivebranch.Insomesense,thedefeatof
ChavezsconstitutionalamendmentsinDecember2007reflectstheactivationofthefederal
systemanddemocracy.63Regardless,federalismsdynamicinVenezuelarevealsthecomplex
natureoftheeffectsofincreasedpoliticalcompetitionondemocraticaccountabilityandrights
performance.
61
62
Diaz Cayeros, Alberto. Federalism, Fiscal Authority, and Centralization in Latin America. Cambridge University
Press, 2006.
63
26
Case#2:Uruguay(AdministrativeFederal/Democracy)
Asapresidentialrepresentativerepublic,Uruguayisaunitarygovernmentwithahigh
leveloffiscaldecentralization.Asasmallcountryofthreemillionpeoplewithapproximately
halflivinginthecapitalcityofMontevideosubnationalgovernmentstraditionallylacked
significanteconomicorsocialroles.Nevertheless,accordingtoanInterAmericanBankstudy,
whenplacedintocomparativeperspective,UruguayrankshighestinLatinAmericanintermsof
proportionofpublicexpendituremanagedbysubnationalgovernments.Inaddition,despiteits
unitarystructure,theUruguayangovernmentprovidesforoneofthegreatestparticipationin
subnationalgovernmentsintotalpublicexpenditure.Althoughfallingbehindthelarge
federaliststatesofArgentina,Brazil,andMexico,Uruguayssubnationalgovernments
proportionallyspendmorethanallothercountriesofLatinAmerica,withexceptionofBolivia
ofColombia.64Infact,in1996,UruguayrankedsixthinLatinAmericainitsdecentralization
effort.Moreover,despiteaunitaryconstitutionandtraditions,UruguayrankedfirstinLatin
Americawithregardtopoliticalautonomyandparticipationatthesubnationallevel.65
Inregardstoterritorialdistribution,Uruguayconsistsofnineteendepartments,
governedbymunicipalofficialswithtermsoffiveyears.ThemembersoftheDepartmental
assemblyformthelegislativebodyofeachdepartment.Themostrecent1967constitutionand
itsassociatedreformsestablishapresidentialrepresentativedemocraticrepublic,guaranteea
bicamerallegislaturewithrepresentationfromthedepartments,andexplicitlyassertaunitary
formofgovernment.66Inaddition,thestructureoftheSenatelimitsprovincialrepresentation,
especiallysinceelectedofficialsmustfollowpartydisciplineinvotingmattersratherthanlocal
priorities.Section16oftheConstitutionexplicitlyoutlinesthestructureofthedepartmental
governments.Inparticular,Articles273and275enumeratethemainresponsibilitiesofthe
Departmentalassemblyandtheintendente(official),whichinclude:enactingthelawsofthe
governmentandConstitution,managingprovincialbudgets,definingtaxesandpricecontrols,
andcreatinglocalpoliciesandprojects.67
64
Filgueira, Kamil, Lorenzo, Moraes, Rius. Decentralization and Fiscal Discipline in Sub-national Governments:
The Bailout Problem in Uruguay Inter-American Development Bank. May 2002.
65
Latin America after a Decade of Reforms. Economic and Social Progress Report Inter-American Development
Bank. John Hopkins University Press, 1997.
66
Government of Uruguay. Library of Congress. <http://countrystudies.us/uruguay/61.htm>
67
1967 Constitution of Uruguay and its Associated Reforms. Political Database of the Americas.
<http://pdba.georgetown.edu/Constitutions/Uruguay/uruguay04.html>
27
Despitealongunitarytradition,decentralizationinUruguayhasbeenlargelydriven
fromatopdownapproach.Overthepasttwodecades,subnationalpoliticalofficeshaverisen
inresponsibility,power,andappeal.SimilartothesituationinChile,however,decentralization
occurredasaresultofanationallevelpoliticalgame,inwhichnationalpoliticiansdecidedto
devolveresponsibilitiestothedepartments.UnlikethesituationinArgentinaandBrazil,in
whichsubnationalactorsplayedanimportantroleinpushingdecentralization,subnational
officialsremainedrelativelypassiveinUruguaythroughouttheprocessofdecentralization.68
Bothexpendituresandresourcesavailabletosubnationalgovernmentshaveincreasedrelative
tothecentralgovernment,measuredasapercentageofGDPandapercentageoftotal
governmentexpenditures,whiletheConstitutionalreformof1996introducedadditional
measurestotransformtheroleofdepartmentalgovernments.Asanexampleoffurther
decentralizationatthelocallevel,inMontevideo,theDepartmentalassemblypassedadecree
in1993tocreateadecentralizedmunicipalandadministrativestructurethroughZonal
CommunityCenters.Aspiringtowardssocial,political,andadministrativedecentralization,the
initiativeestablisheddirectparticipationofthepeopleinlocalgovernment,transferred
decisionmakingtodistrictbodies,anddevolvedtheadministrativeorganizationalstructure.69
AccordingtoanInterAmericanDevelopmentBankstudy,thesetrendshavefosteredan
extremelycompetitivepoliticalenvironmentatthesubnationallevel,inwhichlocalpolitics
playakeyroleinelectoralpoliticsandpartystrategies.Asaresult,theinfluenceandpowerof
localpoliticalelitesontheirpartiesandontheentirepoliticalsystemhassignificantlyrisen.
Coupledwithincreasingfiscalresponsibilitiesforprovidingpublicgoodsandservices,the
currenttrendtowardsdecentralizationhasresultedinsomeissuesoffiscalindiscipline.70
68
Eaton, Kent. Politics Beyond the Capital: The Design of Sub-National Institutions in South America. Stanford
69
Chavez, Daniel. Decentralization and Participatory Urban Management in Montevideo Transnational Institute,
2005.
70
28

Table5.KeySocialandEconomicIndicatorsofUruguay(19702006)
Uruguay 1970-1974 1975-1979 1980-1984 1985-1989 1990-1994 1995-1999 2000-2006
GDPgrowth(annual%) 0.8 4.6 (2.8) 4.2 4.3 2.2 1.7
GINIIndex NA NA 43.7 42.3 NA 44.5 44.7
Immunization,DPT(%ofchildrenages1223months) NA NA 62.4 77.6 93.8 91.6 93.5
Povertyheadcountratioat$2aday(PPP)(%ofpopulation) NA NA 3.7 2.7 NA 4.6 4.8
FreedomHousePoliticalRights 4 5.6 5.2 1.8 1.2 1.4 1.0

FreedomHouseCivilRights 4.5 5.6 4.6 2 2 2 1.0
TransparencyInternationalCorruptionPerceptionsIndex NA NA NA NA 3.21 4.38 6.3
HeritageFoundation
Table5presentssomekeyeconomicandsocialindicatorsinUruguay.Dependenton
agriculturalandlivestockexportsandeconomiclinkagestoitslargerLatinAmericantrade
partners,notablyArgentinaandBrazil,Uruguayseconomyremainsvulnerabletoadverse
externalshocks.AsshowninTable5,from19992002,Uruguaysufferedasevererecessionasa
resultofspilloverofthecurrencycrisisinArgentinaandseriousdebtsustainabilityproblems.
Sincethecrisis,Uruguayseconomyhasrecoveredwithafavorableexternalenvironment,the
adoptionofstructuralreformstoimprovemacroeconomicstability,andtheimplementationof
variousinitiativestorestoremarketconfidenceandstrengthenthefinancialsystem.Coupled
withstrongexportgrowthperformance,GDPgrew6.6%and4.0%in2006and2005,
respectively.Nevertheless,duetoUruguaysexcessivedependencyonagriculturalexportsand
itsregionaltradepartners,theunderlyingrootsofeconomicvulnerabilitystillpersist.71
Uruguaysrightsperformancehasimprovedsubstantiallyaresultofdemocratization
aftertheendingofmilitaryrule.Inparticular,theleftistFrenteAmplio(BroadFront)achieved
prominence,creatingamovementtoengagecivilsocietytocreateademocraticandsocially
equitableregime.Sinceitsfoundationin1971,theFrenteAmpliohadcampaignedagainst
authoritarianrule,garneringbroadsupportfromleftistcoalitions.WhentheFrenteAmplio
assumedcontrolofmunicipalgovernmentinMontevideo,thepartyimplementedaseriesof
importantmovementsandinitiativesthatsupporteddecentralizationandthe
institutionalizationofdemocracy.Mostpredominantly,theFrenteAmplioreorganized
municipaladministrationinordertoincreasesocialandpoliticalaccountability,prioritized
71
Economic Overview: Uruguay. Country Watch, 2008.
29
socialinvestmentandequitableaccesstourbanpublicgoods,andadvocateddecentralization
asanaturalresponsetoneoliberalism.72
Implications
SimilartootherLatinAmericancountries,amilitarygovernmentruledUruguayuntilthe
early1980s,whenaplanannouncedthereturntocivilianrule.Sincethefirstnationalelections
in1984,Uruguayhasimplementedaseriesofsignificantdemocraticandeconomicreforms,as
evidencedintheimprovementofrightsindicatorsinTable5.Nevertheless,Uruguaystill
retaineditsunitarygovernancestructure,althoughtheintendentesandlegislatureofthe
departmentsgainedmoresignificantadministrativeresponsibilities.Asaforementioned,
despiteitsunitaryconstitutionandtraditions,UruguayranksfirstinLatinAmericawithregard
topoliticalautonomyandparticipationatthesubnationallevel.Inaddition,throughfiscal
decentralization,subnationalgovernmentsretainasignificantamountofresponsibility,albeit
lessthanthelargefederalrepublicsofBrazilandArgentina,butmuchmorethantherestof
LatinAmerica.ComparingUruguaytoBrazilandArgentinarevealsinterestingresults,especially
sincealthoughallthreecountrieshaveexperiencedasimilarhistoricaltrajectorymilitary
dictatorship,democratization,increaseinadministrativeresponsibilityatthesubnationallevel
throughfiscalfederalismUruguayretainsitsunitarystructureaccordingtotheConstitution.
Inregardstopoliticalandeconomicrights,Uruguayhasachievedmarkedimprovement,
instepwithBrazilandArgentina.Similartousingfederalismasamechanismtopromote
democraticaccountabilityanddiffusecentralizedauthority,Uruguayinstitutedelectionsatthe
municipallevelandimprovedtheinstitutionsofdirectdemocracy.Toillustrate,inthelast15
years,citizenreferendumshaverepealedlawsandmodifiedtheconstitution,fromconfirming
amnestytomilitaryleaderstoprotectingwaterresourcesandobstructingtheprivatizationof
publicutilities.73Infact,despitetheConstitutionsdeclarationofunitarygovernance,the
governmentofUruguayreflectsahighdegreeofpoliticalandfiscaldecentralization(atthe
departmentalandmunicipallevels),similartothatoffederalrepublics.Inessence,Uruguays
governancestructurecloselyparallelsthatoffederaldemocracies.
72
Chavez, Daniel. Decentralization and Participatory Urban Management in Montevideo Transnational Institute,
2005.
73
Valente, Marcela. Latin America: Direct Democracy Progress and Pitfalls. IPS, 16 May 2007.
<http://ipsnews.net/news.asp?idnews=36967>. Altman, David. Direct Democracy in Latin America. Centro de
Investigacin Sobre Democracia Directa, 2006. <http://www.dd-la.ch/download/Case04_Uruguay.pdf>
30
Thedifference,however,fundamentallyliesinsize.Asasmallcountry,Uruguaydoes
notneedtoestablishacomplexgovernancestructurewithvariouslayersofbureaucracyin
ordertoeffectivelymediateregionalandlocalinterests.Inaddition,althoughrepresentatives
ofthenationallegislaturehaveamandatetoservetheentirecountryratherthanadvocatethe
interestsofaterritoryinconflictwiththeprinciplesoffederalismUruguayssmallsize
makesthetwoobjectivesnearlycongruent,especiallysinceapproximatelyhalfofthe
populationresidesinthecapitalcityofMontevideo.Withonlytwolayersofgovernment
departmentalandcentralUruguayhascreatedaneffectivedemocraticenvironmentwith
significantpoliticalandfiscalautonomyatthelocallevel.Hence,theimplicationssuggestthat
diffusingpowerandincreasingpoliticalparticipationatthelocalleveldoesnotnecessarily
requireafederalgovernancestructure.Inshort,althoughfederalismenhancedrights
protectionanddemocraticaccountability,asinthecaseofArgentinaandBrazil,Uruguays
unitarygovernmentaccomplishedthesameendthroughalternativemeans.
Fromaneconomicperspective,Uruguaysfiscaldecentralizationhasalsocreatedissues
ofindiscretionbysubnationalgovernments,asinthecaseofArgentinaandBrazil,especially
whenresponsibilitiesandresourceslackcleardefinition.Infederalcountries,subnational
officialscancircumventfiscalconstraintsthroughpublicdebtissuancebothdomesticallyand
internationally.AlthoughthesubnationalauthoritiesofunitarygovernmentssuchasUruguay
donothavethesechannelstomisbehave,anInterAmericanDevelopmentreportrevealedthat
subnationalgovernmentsfindotherwaystofinancenoncompliancethroughaccumulating
debtswithothergovernmentagenciesandobtainingdiscretionarytransfersfromthecentral
government.74Hence,evenunitarygovernmentsfacethedifficultiesencounteredbyfederal
governmentsasresultofadministrativedecentralization.Weighingthecostsoffiscal
irresponsibilityagainstthebenefitsofincreasedaccesstopublicgoodsatthelocallevel,
however,yieldsanambiguousresult.AlthoughFilgueira,etal.claimthatdecentralization
potentiallyinhibitsprocessesoffiscaldiscipline,especiallywhensubnationalgovernments
becomealastresortforclientelisticpolicies,administrativedecentralizationhasimproved
equitableaccesstopublicgoodsandgreatercitizenparticipationinthedefinitionofbudgetary
priorities.Hence,animportantpolicyrecommendationisthatifcentralauthoritiesbetter
delineatetheresponsibilitiesofsubnationalauthoritiesandcreateatransparentsystemof
74
31
intergovernmentaltransferswithclearrulesandregulations,thencountriescouldobtainthe
benefitsofadministrativefederalismwhileminimizingthecostsoffiscalirresponsibility.75
Case#3:Mexico(Federal/Dictatorship)
The1917ConstitutionestablishesMexicoasafederalrepublicArticle40statesthatit
isthewilloftheMexicanpeopletoorganizethemselvesintoafederal'democratic,
representativeRepubliccomposedoffreeandsovereignStatesinallthatconcernstheir
internalgovernment'butunitedinaFederationestablishedaccordingtotheprinciplesofthis
fundamentallaw.76Nevertheless,althoughtheConstitutiondeclaresafederalgovernment,in
practice,Mexicohasbeenextremelycentralized,bothpolitically,andeconomically,until
recently.Moreover,despitetheguaranteesofdemocracyandrepresentationinthe
Constitution,Mexicoachievedneitheruntilthe1990s.77
UndertheConstitution,thepresidenthassubstantialpower,withtheabilitytoappoint
importantpublicofficialsintheexecutive,legislative,andjudicialbrancheswithlimited
oversight.Infact,until1997,thepresidentalsoappointedlocalofficialsintheFederalDistrict.
Inaddition,thecentralgovernmentretainedsubstantialpowerinsocialpolicy.Untilthe1990s
whenthegovernmentfirstbegantodecentralizehealthandeducation,thefederalgovernment
hadexclusiveresponsibilityinkeyareasofpolicy,includingcommerce,education,health,labor,
agriculture,energy,naturalresources,andfoodpolicy.Despitethefactthattheconstitution
reservesresidualpowerforthestates,nearlyalloftheprovisionsintheconstitutionlimitstate
influence,enhancingtheeconomicandpoliticalpowerofthecentralgovernment.Inregardsto
fiscalpower,thefederalgovernmentcollectsallincometaxesandconsumptiontaxes.Although
statesandmunicipalitieseventuallyreceiveashare,thecriteriaforresourcedistribution
remaincontentious,especiallysincethefederalgovernmentexercisesasignificantamountof
discretioninallocation.78
AsdescribedbyAcostaRomero:Thetheoryofourfederalismmayrundeeply,butthe
practicalrealitiesaresuchthatthepowersofthepoliticalandpolicyprocesseshavebecome
increasinglycentralizedintherepublic'sfederalexecutive...Mexicanfederalismisanaspiration
75
Ibid.
76
1917 Constitution of Mexico. <http://www.ilstu.edu/class/hist263/docs/1917const.html>
77
Mexico. Handbook of Federal Countries. Forum of Federations, 2002.
78
Ibid.
32
punctuatedbytherealityofanundeniablecentralismwhichischaracterizedbyanincreasingly
pervasivepresidency.79
Inthepasttwodecades,however,decentralizationeffortshaveoccurredinconjunction
withthedemocratizationmovement.Asameanstopromotemoreequitableregional
developmentanddivestexcessiveresponsibilities,thefederalgovernmenttransferredhealth
andeducationtothestategovernments,increasedtheshareofrevenueavailableforsub
nationalgovernments,andsetmoretransparentstandardsforfiscalallocation.Nevertheless,
thecentralgovernmentretainssignificantcontroloverkeyareasofdecisionmaking.80
Regardless,increasingpoliticalpluralismandtherenewaloffederalisminpoliticaldebatehas
ledtoasubstantialefforttoidentifyafederalarrangementwhichcanmeetdevelopmental
inequities,withparticularemphasisonadministrative,spatial,andeconomicdecentralization.81
Inregardstotheimpactofdecentralizationinitiatives,OchoaRezaarguesthatfederal
featuresexertedimportantinfluenceinthepromotionofMexicosdemocratictransition.By
openingnewelectoralspacesatthesubnationallevel,federalismallowedoppositionpartiesto
enterintocompetitionwiththeInstitutionalRevolutionaryParty(PRI)thusactivatingthe
federalsystem.Whensubnationaloppositionpoliticiansgainedpower,theymobilized
supporterstoreformelectorallawstoprovideanessentialdemocraticcheckagainstthe
dominantparty.Collectively,thesepressuresinfluencedthenationalgovernmenttore
evaluateandrenegotiatelegalandinstitutionalmeasuresthateventuallycontributedto
democraticconsolidation.Moreimportantly,asfederalopenedupspaceforpolitical
contestationatlowerlevelsofgovernment,increasinglydemocraticmultipartyparticipation
acrossthreelevelsofgovernmentnotonlypromoteddemocracy,butbegantotransformthe
preceptsoftheconstitutionintoaworkingfederalframework.82
Forthepurposesofthiscasestudy,Mexicoiscategorizedasadictatorshipunder
Inmansmethodologyasaresultofitslonghistoryofrepressive,authoritarianrule.In
perspective,untiltheelectionofVicenteFoxin2000,theInstitutionalRevolutionaryParty(PRI)
79
Rodriguez, Victoria. Recasting Federalism in Mexico. Publius. 28:1. Winter 1998.
80
Mexico. Handbook of Federal Countries. Forum of Federations, 2002.
81
Daz-Cayeros, Alberto. Decentralization, Democratization, and Federalism in Mexico Centro de Investigacin
para el Desarrollo, 2004.
82
Ochoa-Reza, Enrique. Federalism and Mexicos Transition to Democracy. Federalism and Democracy in Latin
America. John Hopkins University Press, 2004.
33
hadcontrolledthepresidencyfor71years.83AfterthefallofdictatorshipofPorfirioDazin
1910,allrevolutionaryleadersunitedtoformthemoderndayequivalentofthePRIparty,
whichruledasavirtualonestatepartyuntil1988,supportedbymassiveelectoralfraudand
strictinternaldiscipline.Infact,inadebatewithOctavioPazin1990,MarioVargasLlosa
describedMexico'spoliticalsystemas"theperfectdictatorship".84Currently,althoughMexico
isstillconsideredaFlawedDemocracybythemostrecentrankingbytheEconomist,85Mexico
hasmadeimportantprogressindemocraticreform,86asevidencedintheimprovementin
rightsindicatorsshownbelowinTable6.
Table6.KeySocialandEconomicIndicatorsofMexico(19702006)
Mexico 1970-1974 1975-1979 1980-1984 1985-1989 1990-1994 1995-1999 2000-2006
GINIIndex NA NA 46.3 NA 51.1 48.8 49.2
Immunization,DPT(%ofchildrenages1223months) NA NA 44 55.6 80.8 94.8 93.8
Povertyheadcountratioat$2aday(PPP)(%ofpopulation) NA NA 39.7 NA 22.5 27.7 18.5
FreedomHousePoliticalRights 4.5 4 3 3.8 4 3.6 2.1

FreedomHouseCivilRights 3 3.4 4 3.8 3.8 3.8 2.3
HeritageFoundation
Table6containssomekeyeconomic,political,andsocialindicatorsofMexico.In
perspective,sincethe1980s,theMexicaneconomyhasundergoneaprofoundtransformation
asaresultofeconomicliberalizationandthejoiningoftheNorthAmericanFreeTrade
Agreementin1994.Asthe12thlargesteconomyintheworldonaPPPbasis,Mexicohasoneof
thehighestpercapitaincomesinLatinAmerica,andistheonlyLatinAmericancountryinthe
OrganizationforEconomicCooperationandDevelopment(OECD).87Sincethe1994crisis,
Mexicosmacroeconomicfundamentalshaveimprovedsubstantiallythroughsignificantpolicy
changesandeconomicstructuralreforms,therebyproducingastrongerandmorestable
economy.Fiscalconsolidationhasreducedthepublicdebt,andcrediblemonetarypolicyhas
83
Buchsbaum, Herbert. A New Mexicoor still the old? New York Times. 27 September 2002.
84
Amsterdam, Robert. A Perfect Dictatorship? Robert Amsterdam Blog.
<www.robertamsterdam.com/2007/02/a_perfect_dictatorship_1.htm> Accessed: April 10 2008
85
The Economist Intelligence Units index of democracy The World in 2007.
<http://www.economist.com/media/pdf/DEMOCRACY_INDEX_2007_v3.pdf> Accessed: April 10 2008
86
Preston, Dillon, Myers. Opening Mexico: The Making of a Democracy. Farrar, Straus and Giroux, 2004.
87
GNI Per Capita, 2006 World Bank Development Indicators, 2007.
34
loweredinflationtomeetthecentralbanktargetof3.0%.Hence,from1995to2006,GDP
growthaveraged3.6%peryear.88Buoyedbyexportsandstronginvestment,GDPgrowth
peakedat4.8%in2006,thoughlaborproductivitycomprisedaverysmallpercentage.89Asan
exportorientedeconomy,Mexicohasahighlyopeneconomy,withexportsaccountingfor
approximately31.9%oftotalGDPin2006.
Implications
AsdescribedbyRomero,Mexicoatteststoaclearsituationinwhichtheprinciples
establishedintheConstitutiondidnottranslatetopoliticalreality.Asaresult,classifying
countriesasfederalversusunitaryrequiresmuchgreaterattentiontodetailthanmerely
lookingatConstitutionalmandates.Forexample,althoughtheConstitutioncreatesafederal
republicoffreeandsovereignstates,subnationalgovernmentshadveryminimalpowerin
economicandsocialpolicyuntilrelativelyrecently.ReflectedinPRIdominance,thepresident
exercisedsubstantialpowersthatlimitedtheoversightandinfluenceofothergovernmental
branches.Inaddition,subnationalgovernmentsfacedsignificantresourceconstraints,andthe
centralgovernmentstaxsharingpoliciesreflectedadegreeofdiscretionthatbredclientelism
andtheentrenchmentofexistingpowerstructures.
Fundamentally,however,Mexicosexampleillustrateshowfederalinstitutions
positivelyinfluencedemocratizationafundamentalelementofrightsperformance.Similarto
BrazilandArgentina,Mexicosstrengtheningoffederalinstitutionsopenedupnewelectoral
spacesthatpromotedpoliticalpartycompetitionthateventuallyledtoreformand
democratization.Inaddition,thefederalstructureprovidedanimportantinstitutionalcheck
againstexistentpowerstructures.OchoaRezafurtherconfirmsthatfederalreformsplayedan
essentialroleindemocraticconsolidation,especiallysincefromahistoricalperspective,the
variousdecentralizationreformsof1986,1991,and1993simultaneouslystrengthenedthe
federalsystemwhileimprovingdemocraticaccountability.90
IndirectcontrasttoVenezuelaandBrazil,however,inwhichfederalismresultedinthe
fragmentationofpoliticalsocietyintomultipleregionalpartiesacommonanticipationin
federalsystemsregionalactorsinMexicoparticipatedwithinpolitywideparties,thus
88
Economic Survey of Mexico OECD, 2007
89
World Development Indicators, 2007
90
Ochoa-Reza, Enrique. Federalism and Mexicos Transition to Democracy. Federalism and Democracy in Latin
America. John Hopkins University Press, 2004.
35
strengtheningaunifiedcoalitionagainstthePRI.Infact,federalismplayedanessentialrolein
improvingelectoraltransparencyandfacilitatingthepresidentialtransitionfromthePRIparty
totheAllianceforChangecandidateVicenteFoxin2000acoalitionformedbytheNational
ActionParty(PAN)andtheEcologistGreenPartyofMexico(PVEM).AccordingtoRodriguez,
federalinstitutionsnotonlyprovidedahorizontalcheckonpresidentialpowerinMexico
throughthelegislatureandjudiciarybranch,butalsocreatedaverticalcooperativeframework
ofresponsibilityandmutualsupportamongdifferentlevelsofgovernment,91allwhich
ultimatelyimprovedpoliticalandcivilrights.
Inregardstofederalismsaffectonsocialperformance,federalisminMexicohasa
ratherambiguousresult.Ingeneral,thegovernmenthasmadegreatstridesindecentralizing
educationexpenditure,removinginfrastructureconstructionfundsfrompresidentialdiscretion,
andincreasingrevenuesharingamonglevelsofgovernment.Inparticular,fundsforregional
developmentwitnessedasubstantialtransformation,asinthecaseoftheSocialInfrastructure
Fundwhichevolvedfromdiscretionaryallocationtoallocationbasedontransparentpoverty
andpublicserviceneeds.92Decentralization,however,hascreatedmanyadditionalchallenges
ofequityandappropriateresourceallocation.Forexample,onapercapitabasis,education
decentralizationledtoincreasinginequityinpercapitatransferofeducationfundsamong
regions.SkoufiandShapiros2006evaluationoftheMexicosQualitySchoolsProgram(PEC)
confirmedtheexacerbationoftheissueofinequity.Nevertheless,repetition,dropout,and
failureratesdecreasedoverallinschoolswhereparentsandteachersjointlydevelopedschool
improvementprograms,excludingindigenousareas.93Intheory,fiscalandadministrative
federalismshouldreduceintraregionalinequities,asinthecaseofArgentina,buttheopposite
hastranspiredineducationinMexico,inwhichincreasedfiscaldecentralizationexacerbated
regionalresourceinequities.Inperspective,however,giventhatcentralgovernmenthasa
monopolyovertaxesandgovernmentalrevenue,subnationalactorsremaindependentonthe
economicresourcesofthegovernment,signifyingthatfulladministrativefederalismhasnot
yetoccurredinMexico.Asaresult,itremainsdifficulttodrawadirectconnectionbetweenthe
levelofadministrativedecentralizationandregionalinequityintheprovisionofsocialgoods.
91
Rodriguez, Victoria. Recasting Federalism in Mexico. Publius. 28:1. Winter 1998.
92
Daz-Cayeros, Alberto. Regoinal Resource Allocation in Mexico. Federalism and Democracy in Latin America.
John Hopkins University Press, 2004.
93
Winkler, Donald. Identifying the Impact of Education Decentralization on the Quality of Education. USAID,
2007.
36
Inregardstotheimpactoffederalismoneconomicperformance,Mexicosfederal
reformsofthe1990scoincidedwitheconomicliberalizationandprofoundeconomictransition,
whichgeneratedincomegrowth,investment,andproductivityincreases.Thedirectlink
betweenfederalismandeconomicreform,however,remainstenuous,especiallysincefiscal
federalismhascreatedadditionaldifficultiesoffiscalirresponsibilityatthesubnationallevel,
similartothecasesofArgentina,Brazil,andUruguay.GiventhatMexicanexportstotheUnited
StatesaccountfornearlyaquarterofthecountrysGrossDomesticProduct(GDP)andmore
than80%oftotalexports94,however,Mexicoseconomyinextricablylinkstothatofits
northernneighbor.Nevertheless,inaggregate,Mexicoseconomicperformancehasimproved
steadilywithstructuralreform,facilitatedbygreaterfiscaldisciplineonthepartofcentral
government.Suchcomprehensiveeconomicreforms,however,requiredunifiednationalaction,
whichpotentiallywouldnothaveoccurredifMexicohadbeenfullydecentralizedpoliticallyat
thattime.Forexample,SalinasusedhisbroadpowersasaPRIpresidenttopassNAFTA,
leveragingthestrongcoalitionofhispartytopassthetreatydespitepopularresistancetotrade
liberalization,evenamongPRIsconstituents.95Underamorefederalanddemocratic
government,however,suchacontentioustreatywouldhaveencounteredmuchmorepolitical
resistance.Asaforementioned,federalismcancreatepoliticalcompetitionanddivisivenessthat
limitstheabilitytoenactmajorpolicychanges,asinthecaseofBrazilbeforetheCardoso
administration.Insummary,althoughfederalismplayedakeyroleindemocratizationinMexico,
itseffectsonsocialandeconomicpolicyremainindeterminate.
Case#4:Chile(Unitary/Democracy)
Sinceitsindependencein1810,Chilehashadalongunitarytradition,further
strengthenedundermilitaryrule.Asarelativelysmallunitarystateconsistingof15regions,51
provincesandapproximately346municipalities,Chilescurrentinstitutionalstructurewas
developedunderthemilitarydictatorshipofGeneralAugustoPinochet,whoruledthecountry
from1973to1990.TheConstitutionof1990,createdunderPinochetssupervisionfor
transitionbacktocivilianrule,explicitlystatesinArticle2TheStateofChileisunitary.Its
territoryisdividedintoregions.Thelawshallprovidethatadministrationthereofbefunctional
94
Background Note: Mexico. US Department of State. February 2007.
95
Thacker, Strom. NAFTA coalitions and the political viability of neoliberalism in Mexico Journal of Inter-
American Studies and World Affairs. Summer 1999.
37
andterritoriallydecentralized.96Nevertheless,municipalitiesandregionalgovernmentshave
specificresponsibilitiesandpowersintheadministering,deliveringsocialservices,and
investingininfrastructure.
Fromahistoricalperspective,underPinochetsregime,strictmilitaryauthorityandan
ideologicaldesiretoreducetheinvolvementofthestateintheeconomycreatedanodd
combinationofcentralcontrolatthenationallevelanddecentralizationatthemunicipal
level.97Pinochetestablishedamilitaryhierarchyofgovernment,inwhichgovernorsheaded
provincesandmayorsoversawmunicipalities.DirectlynamedbythePresidentandloyaltothe
centralgovernmentbeforetheirownterritories,appointedsubnationalofficialsensuredthe
influenceofthenationalgovernmentatalllevels.Inattemptingtoimproveefficiencyinthe
provisionofpublicgoodstoparalleltheprivatemarket,however,Pinochetstreamlined
governmentanddevolvedasignificantlevelofadministrativeresponsibilitytothe
municipalities.Actinglikeservicedeliveryagents,municipalgovernmentsprovidedlocalpublic
serviceonacosteffectivebasis,withouthavinglocalgoverningpower.Asaresult,
decentralizationextendedPinochetshierarchicalcontrol,consistentwithhispoliticaland
macroeconomicobjectives.98
Fromahistoricalperspective,Chilestransitiontodemocracyonlyoccurredrelatively
recently,whenaConstitutionestablishingatransitionitinerarywasapprovedin1980.Despite
significantpoliticalrepressionandhumanrightsatrocities,Pinochetinstitutedaseriesof
importanteconomicreforms.CoinedbyMiltonFriedmanastheMiracleofChile,Pinochet
liberalizedtheeconomy,privatizedstateownedenterprises,stabilizedinflation,and
encouragedforeigninvestment.Labordisciplineimposedthroughrepressionofunions,
liberalizationofprices,exchangeratedevaluation,increasedinvestmentinpublicworks,and
highcopperpricesspurredGDPgrowthandinvestment.99Unsurprisingly,Chilesfreemarket
experiencehasbeencelebratedasatestamenttothesuccessoftheneoliberaldevelopmental
paradigmusedasamodelformanyothercountries.EvenaftertheendofthePinochet
regime,democraticleaderscontinuedtheneoliberaleconomicreforminitiatedbythemilitary
government.
96
Constitution of Chile: Official Translation.< http://confinder.richmond.edu/admin/docs/Chile.pdf> Accessed:
April 12, 2008
97
Stewart, Ranis. Decentralization in Chile. <http://hdr.undp.org/docs/publications/ocational_papers/oc14.htm>
98
Ibid.
99
Ffrench-Davis, Ricardo. Economic reforms in Chile: From Dictatorship to Democracy. University of Michigan
Press, 2002.
38

Nevertheless,despitesuccessincontrollinginflationandstabilizingtheeconomy,the
freemarketreformsledtoawideningincomegap,increasedpoverty,andunemployment.
ManycriticschallengethebasisoftheMiracleofChile,arguingthatthecelebratedeconomic
growthmustbeviewedinlightofthecatastrophicrecessionsof1975and1982,thatpoverty
wideneddramaticallyasthepercentageofthoselivinginextremepovertydoubledfrom1970
to1990,foreigndebtskyrocketed,thatenvironmentalstandardsdecreased,andthatmany
importantexportgainscanbeexplainedawaybyfortuitousfactorsinthegreaterglobal
economy.100
Recently,Chilehasmadedecentralizationapriority.Whilemaintainingfiscalrestraint
andstrictmacroeconomicaccountability,Chilesdecentralizationinitiativeshavefocusedon
buildinginstitutions,developingprocesses,andcreatingtherightincentivestoflowfrom
processesandinstitutions.Ratherthanwideopendevolutionofresourcesandcompetencies,
Chilehasfavoredselectiveandsectoraldecentralization,mostnotablyinhealthand
education.101Inaddition,Wiesnerarguesthatunlikethedecentralizationinitiativesofother
LatinAmericancountries,Chileandecentralizationhasachievedgreaterprogressasaresultof
theapplicationoftightfiscalandbudgetconstraints,combinedwithincentivestoenhancethe
efficiencyofoverallpublicandprivateresourceallocation.Althoughtransfersfromnationalto
thesubnationallevelcompriseapproximately0.7%ofGDP,expertscautionthatsimplylarger
transfersdonotindicatethatrealandeffectivedecentralizationhasoccurred.Infact,under,
Chilesuniquesystemofintramunicipaltransfers,wealthyprovinceshavetransferredupto
41%oftheirmunicipalleveltaxrevenues.102
100
Collins, Lear. Chile's Free Market Miracle: A Second Look. Food First Books, 1995.
101
102
Ibid.
39

Table7.IntergovernmentalSharesofTotalExpenditures(NetofTransfers,%ofTotal)
Chile - Intergovernmental Expenditure Shares 1990 1995 2000
National 91.4 90.4 89.6
Regional 1.1 1.4 1.5
Municipal 7.5 8.2 8.9
Total 100 100 100
Chile - Tax Revenues by Level of Government 1990 1995 2000

National 92.8 92.6 91.4
Municipal 7.2 7.4 8.6
Total 100 100 100
Source:Wiesner,2003;MinistryofFinanceBudgetOffice
Hence,despitecentristtendenciesandlowcentralgovernmenttransferstosubnational
actors,Chilehasembarkedonasignificantprocessofdecentralization,albeitdifferentfromthe
typicalmodelinLatinAmericagivenitsstrictfiscaldiscipline.AsshownaboveinTable7,the
shareofexpendituresconcentratedattheregionalandmunicipallevelshasgrownmodestly
alongwithtaxrevenuesraisedatthemunicipallevel,thoughtherisingtrendtowards
municipalizationshouldalsobeviewedinlightofincreasingincentiveintensivesectoral
decentralizationandgreatersubnationalpolicyinfluence.
Table8.KeySocialandEconomicIndicatorsofChile(19702006)
Chile 1970-1974 1975-1979 1980-1984 1985-1989 1990-1994 1995-1999 2000-2006
GINIIndex NA NA NA 57.2 55.3 57.5 56.3
Immunization,DPT(%ofchildrenages1223months) NA NA 95.8 94.6 92.6 92 94.2
Improvedsanitationfacilities(%ofpopwithaccess) NA NA NA NA 84 87 90.5
Povertyheadcountratioat$2aday(PPP)(%ofpopulation) NA NA NA 24.5 12.2 9.7 7.6
FreedomHousePoliticalRights 4 6.8 6 5.4 2 2.2 1.6

FreedomHouseCivilRights 3.5 5 5 4.4 2 2 1.3
HeritageFoundation
AsshownaboveinTable8,ChilehasoneofSouthAmericasmoststableand
prosperousnations.Overall,ChilehasthehighestnominalGDPpercapitainLatinAmerica.
WithinLatinAmerica,Chileleadsintermsofcompetitiveness,macroeconomicstability,
economicfreedom,lowcorruptionperception,humandevelopment,democraticaccountability,
andpoliticalstability.AccordingtothemostrecentGlobalCompetitivenessReport,Chileranks
40
asthe26thmostcompetitivecountryintheworld.103AlthoughChilebestsotherLatinAmerican
countriesintermsoffiscalrestraintandmacroeconomicmanagement,thecountryranksfourth
worstintermsofincomedistributioninLatinAmericaand80thintheworld,behindmuch
poorercountriessuchasZambia,Nigeria,andMalawi.104
Implications
Fromvariouseconomicandsocialperspectives,ChileoutpacestherestofLatinAmerica.
AstheleastcorruptandmostbusinessfriendlycountryinLatinAmerica,Chilehasharvested
thebenefitsofforeigninvestment,incomegrowth,andproductivityincreases.Chiles
performance,however,islessattributabletoitsunitarygovernancestructure,butratheronan
importantprecedentsetunderthedictatorshipofPinochet.
Inregardstotheimpactofunitarygovernmentoneconomicperformance,Pinochets
dictatorshiphadthepowertosuppresswagesandinstituteausteremacroeconomicreforms,
suchasprivatizationdespiteincreasedunemploymentandforcedeconomicliberalization.
Before1973,Chilehadalongturbulenthistoryofdemocraticrulewithchronicinflationand
uneveneconomicgrowth,especiallysincedemocraticpoliticsoftenpolarizedpolitical
consensus,therebyimpedingimportantmacroeconomicandstructuralreforms.105Through
authoritarianismcombinedwithcentralized,unitaryrule,PinochettransformedChilefromone
ofthepoorestcountriesinLatinAmericatooneofthewealthiestfromanaggregate
perspective.
ThefactthatPinochetmanagedtosetaprecedentforChileaneconomicdevelopment
thatcontinuedthroughitsdemocratictransition,however,representsasingularexamplenot
reflectiveofunitarygovernmentsasawhole.ThemilitarydictatorshipsinArgentina,Brazil,and
Uruguayallcentralizedgovernmentandcreatedvaryingdegreesofunitaryrule,butfailedto
accomplishmacroeconomicreform.Infact,inallthreecases,severemacroeconomic
mismanagementofthe1980sdebtcrisisprovidedanimportantpoliticalimpetusfor
restorationofcivilianrule.Asaresult,PinochetspurportedmiracleinChilereflectslessonits
unitarystructure,butonthespecificpoliciesoftheadministration.Unitaryandcentralizedrule,
103
Global Competitiveness Report 2007-2008. World Economic Forum.
<http://www.weforum.org/en/initiatives/gcp/Global%20Competitiveness%20Report/index.htm> Accessed: April 13,
2008
104
Economy of Chile. Wikipedia. <http://en.wikipedia.org/wiki/Economy_of_Chile> Accessed: April 13, 2008
105
Keech, William. Democracy, Dictatorship and Economic Performance in Chile. Carnegie Mellon University,
2004.
41
however,doesincreasetheeaseofenactingcomprehensivereform.Withoutpolitical
competitionordissent,Pinochetcouldimplementunpopularpolicies,suchasthesaleofstate
ownedenterprisesdespitesevereunemploymentandtheprivatizationofpublicutilities.By
takinganausteredefenseofprivateproperty,Pinochetcreatedabusinessenvironmentthat
incentivizedinvestmentfromabroadbyrestoringconfidencethatbusinesstransactionswould
beenforceablewithforce.Ontheotherhand,dictatorshipshavealsoentrenchedopportunities
foracutecorruptionandthemisuseofpublicresourcesforprivategain.Asurveyof
dictatorshipsintheworldtodayexposesthefactthatplentyofautocraticrulersexistwithout
accomplishingimportantmacroeconomicstabilizationreforms.Hence,onecannotconclude
thatunitarygovernmentsanddictatorshipsalwaysproducebeneficialeconomicresults.
Fromarightsperspective,ChilefallsinlinewiththeotherLatinAmericancountriesin
thiscasestudy.Despiteitsunitarystructure,Chilehasimproveddemocraticaccountability,
providingforchecksandbalancesagainstauthority.Everyfouryears,Chileholdsnationwide
presidential,parliamentary,andmunicipalelections.Voterselect38senatorsand120deputies
forparliament,andonemayorandafullbodyofcouncilmenpermunicipality.Similarto
Uruguay,givenChilessmallpopulationandgeographicarea,traditionsofdirectdemocracyand
politicalparticipationattheplebiscitarylevelemergestrongly.Hence,theevidencesuggests
thatunitarygovernmentscanaccomplishthesamelevelofrightsperformanceasfederal
governments,despitetheabsenceofgreaterinfluenceofsubnationalgovernments.Inessence,
parallelingthepoliticaldecentralizationoffederalgovernments,democraticconsolidationin
unitarygovernmentsfocusesonstrengtheningrepresentationandresponsibilityatthe
municipalandlocallevelsofgovernment.
Fromasocialwelfareperspective,ChileoutpacestherestofLatinAmerica,though
significantincomeinequalityrevealstheunintendedconsequencesofneoliberalreform.
Paradoxically,Pinochetssuccessesinvarioussocialpolicies,suchaspromotinguniversal
immunizationandimprovinghealthinfrastructure,dependedonadministrative
decentralization,asinhealthcare,indirectcontrasttocentralization.Asaresult,onecannot
categoricallyclaimthatunitarygovernmentsprovidegreatersocialbenefits,especiallysince
UruguayandChilethetwounitarygovernmentsarebothsmallcountrieswithlimited
geographicspan,haverelativelyhomogeneouspopulations,andadoptdecentralizationasa
strategyforresourceallocation.Ingeneral,bothUruguayandChileconfrontfewerchallenges
inadministeringsocialwelfareprogramsduetoacombinationofpopulationdemographicsand
42
geography.Incomparison,thelargefederalrepublicsBrazil,Argentina,andMexicoface
formidabledifficultiesinbureaucraticcontrolandadministrationofsocialprogramsasaresult
ofsheergeographicarea,largeandheterogeneouspopulation,andsignificantethnicdiversity.
ComparisonofResults
EconomicPerformance
AsGraph1illustrates,GDPannualgrowthrateisarathervolatilemeasurefromthe
periodof1970to2006,LatinAmericancountriesunderwentaseriesofboombustcycles.
EconomicgrowthratesacrossLatinAmericaaveraged6%inthe1970s,fueledbyanimport
substitutionstrategyreliantonliquidityinsovereigndebtmarkets,drivenbythesurplusof
investmentfromabroad.The1980s,commonlyreferredtoasthelostdecade,however,
broughtaperiodofsevererecessionwithhighoilprices,highinterestrates,andthereduction
ofliquidityasUSdollarswenttoOPEC.Withaloomingdebtcrisis,LatinAmericasGDP
contracted,shrinkingtopre1970slevels.Inflationskyrocketedanddebtserviceintheregion
requiredapproximatelyonethirdoftheentireregionsexportearnings.106
Fromthegraphbelow,Chileseemstohaveweatheredtheshockbetterthantheother
countries,managingtorecovercomparativelyfaster.Inthe1990s,Chilealsoachievedhigher,
morestableGDPgrowthrates,thoughthegaphaserodedovertime.Chilesperformance,
however,islessassociatedwithitsunitarystructurethanthestrictmacroeconomicdiscipline
andstructuralreformsinitiatedunderthePinochetregimethatfacilitatedrecoveryandgrowth.
TheGDPgrowthratesofthebenchmarkcasesofArgentinaandBrazilfluctuatewildly,often
notinsynchronicity,thoughinthemostrecentperiods,differencesinGDPannualgrowthrates
havenarrowed.Asmentionedearlier,givenUruguaysdependenceontradeandremittances
fromitslargeLatinAmericanneighborsnotablyArgentinaandBrazilitsGDPgrowthrates
parallelthatofthebenchmarkcases.GivenVenezuelasoileconomy,thecountrymanagedto
recoverinamoresustainedfashionfromthecrisisofthe1980saresultofrisingoilexports
thatbuoyedGDPgrowth.Fromcursoryinspection,GDPgrowthratesdonotsuggestthat
federalgovernmentsachieveprofoundlybetterperformancetoomanyparticularistic
elementsofeconomicstructureexplainawaythevariation.Nevertheless,thefactthatGDP
growthrateshavestabilizedandimprovedinthe1990ssuggestthatinadditiontoanupturnin
106
Daly Hayes, Margaret. The U.S. and Latin America: A Lost Decade?. Foreign Affairs Magazine, 1988.
43
theglobalmacroeconomiccontext,decentralizationreformsmayhavecontributedtogreater
economicperformance.
Graph1.GDPAnnualGrowthRate(%)
12.0
10.0
8.0
6.0
4.0
2.0
0.0
1970-1974 1975-1979 1980-1984 1985-1989 1990-1994 1995-1999 2000-2006
(2.0)
(4.0)
Brazil (Fed/Dem) Argentina (Fed/Dem)

Venezuela (Fed/Dem, low A) Uruguay (AFed/Dem)
Mexico (Fed/Dict) Chile (Unitary/Dem)
Source:WorldDevelopmentIndicators,2007
AsshowninGraph2,GDPpercapitainArgentinaoutpacedtherestofLatinAmericafor
theentireperiodfrom19702006.Infact,in1900,Argentinahadthesixthhighestpercapita
nationalincomeintheworld,andwasconsideredapotentialeconomicrivaltotheUnited
States.107Argentinasfailuretoindustrialize,however,causedthecountrytolagbehind,
especiallyasagriculturalandcommoditypricesbegantofall.BrazilsGDPpercapita,however,
remainsthelowestamongthecases.Asthefifthlargestcountryintheworldbygeographical
areaandthefifthmostpopulouscountry108,GDPpercapitastagnatedaspopulationgrowth
outpacedincomegrowth.109Hence,justfromlookingatBrazilandArgentinaalone,itisdifficult
todrawaconclusionabouttheGDPpercapitaoffederaldemocraciesgiventhewidevariance.
107
Background to the Crisis in Argentina Crisis States Research Center London School of Economics.
<http://www.crisisstates.com/associated/CAW/background.htm>
108
Brazil. CIA World Factbook. <https://www.cia.gov/library/publications/the-world-
factbook/geos/br.html#Geo> Accessed: April 11, 2008
109
Brazil: The Labor Force and Income Levels. <http://countrystudies.us/brazil/70.htm> Federal Research
Division of the Library of Congress, 1998. Accessed: April 11, 2008
44
Chileachievedthegreatestimprovementasaresultofstructuralreformsthatenhanced
theoverallmacroeconomiccontext,bringingGDPpercapitanearlymonotonicallyupward
despitetheeconomicshocks.Overall,GDPpercapitahasmorethandoubledfromlevelsinthe
early1970s.GDPpercapitaforMexicoandUruguayhasalsoimprovedmodestlywithagain
upwardsof$2,000,approximatelya50%improvementfromtheearly1970stothemost
currentperiod.Venezuela,however,hassustainedadeclineinGDPpercapita,fallingfrom
approximately$6,200intheearly1970sto$4,700recently.Sincethe1990s,withtheexception
oftheVenezuela,GDPpercapitahasgrownsubstantiallyafterthestagnationofthe1980s.
Graph2.GDPPerCapita(Constant2000USD)
9,000.0
8,000.0
7,000.0
6,000.0
5,000.0
4,000.0
3,000.0
2,000.0
1,000.0
0.0
1970-1974 1975-1979 1980-1984 1985-1989 1990-1994 1995-1999 2000-2006

TheaforementionedtrendsinGDPpercapitaextendtothetrendinhouseholdfinal
consumptionpercapita,asshowninGraph3.Argentinaoutpacestherestofthecountries,
whileBrazilremainsthelowest.Chilehasimprovedthegreatest,withmodestgainsinMexico
andUruguay.Venezuela,however,hasexperiencedadeclineinhouseholdfinalconsumption
percapita.Frominspection,itisdifficulttodrawaconclusionabouttheimpactofgovernance
structureoneconomicperformance,especiallyinlightofthewidevariationinthebenchmark
casesandtheparticularisticelementsofeconomicstructure.
45
Graph3.HouseholdFinalConsumptionPerCapita(Constant2000USD)
10,000.0
9,000.0
8,000.0
7,000.0
6,000.0
5,000.0
4,000.0
3,000.0
2,000.0
1,000.0
0.0
1970-1974 1975-1979 1980-1984 1985-1989 1990-1994 1995-1999 2000-2006

AsshowninTable9,thefederaldemocraciesBrazilandArgentinaappeartohave
GINIcoefficientsthatareonthehighend.Throughouttheperiodfrom19802006,Brazilhad
thehighestGINIcoefficient.DevelopmentalexpertshaveintensivelystudiedBrazilsincome
inequality,suggestingthatheterogeneouslevelsofeducationintheworkforceaccountfor
severeincomeinequality.Internationalcomparisonsrevealthatfromtheperiodof1978to
1998,although70%ofallcountriesintheworldhadapercapitaincomebelowBrazils,10%of
therichestfamiliesinBrazilhadaccessto50%oftheaggregatefamilyincome,whilethe
poorest50%ofhouseholdsonlyaccountedfor10%ofaggregateincome.110Accordingtoa
recentWorldBankstudy,theRealPlanapolicyofmacroeconomicstabilizationcontributed
totherecentmodestreductionintheGINIcoefficient.111ArgentinasGINIcoefficient,however,
hasworsenedoverthepastdecadesaresultofadoptingneoliberalpolicies.Altimirattributes
thedeteriorationinincomeequalitytogrowingunemploymentinthesuccessivecrisesinthe
110
Bugarin, Mirta. Human Capital and Income Concentration in Brazil University of Brazil, 2007.
111
Clements, Benedict. The Real Plan, Poverty, and Income Distribution in Brazil World Bank, 1997.
<http://www.worldbank.org/fandd/english/0997/articles/0180997.htm>
46
1980s,andunemploymentgeneratedbytherestructuringofproductionandtheincreasein
laborforceparticipationinthe1990s.112
ChilehasthesecondhighestGINIcoefficient,althoughthelevelofabsolutepovertyhas
fallen.Asaresultofliberalization,privatization,andothermacroeconomicreforms,theincome
distributionofChilehaschangedinthefollowingmanner:theentiredistributionhasshiftedto
therightsuchthatnearlyeverybodyhasearnedmorethanpreviously,thedispersionofthe
distributionremainsbroadlystablesothatthelevelofoverallinequalityhasnotchanged
greatly,andasimultaneouslycompressionandexpansionofthetailssignifiesthatinequality
amongtherichhasincreased,thoughinequalityofthepoorhasdeclined.113Asaforementioned,
tocombatthehighlevelofdisparity,Chilehasuseddecentralizationasamechanismtoreduce
regionalinequalities.
UruguayhasoneofthelowestGINIcoefficients,inlightofthecountrysagriculturally
orientedeconomicstructure,similargeographicclime,andsmallpopulation.Intheperiodof
markedtradeliberalizationfrom19901994,theGINIcoefficientofMexicoworsened,butthen
moderatedinthelasttwoperiods.EspeciallyinperspectivewithMexicosrecentreformsto
increasethelevelofdecentralizationandresponsibilityofsubnationalgovernmentsasa
mechanismtoreduceintraregionalinequity,themoderationofinequalitycouldpotentiallybe
attributedtotheseefforts.Venezuela,however,hasregisteredasignificantdecreaseinthe
GINIcoefficientfrom55.8intheearliestperiodto46.1morerecently,attestingtotheefficacy
ofthegovernmentspropoor,socialistreforms.
Table9.GINICoefficient
GINI Index 1980-1984 1985-1989 1990-1994 1995-1999 2000-2006
Brazil(Fed/Dem) 57.7 59.3 60.3 59.6 58.1
Argentina(Fed/Dem) NA 44.5 45.4 49.2 52.1
Venezuela(Fed/Dem,lowA) 55.8 48.8 41.7 49.2 46.1
Uruguay(AFed/Dem) 43.7 42.3 NA 44.5 44.7
Mexico(Fed/Dict) 46.3 NA 51.1 48.8 49.2
Chile(Unitary/Dem) NA 57.2 55.3 57.5 56.3
Benchmark(Average) 57.7 51.9 52.8 54.4 55.1
112
Altimir, Oscar. Income Distribution in Argentina, 1974-2000. United Nations, ELAC. 53-82. CEPAL Review
N 78.
113
Contreras, Larraaga, Litchfield, Valdes. Poverty and Income Distribution in Chile. Cuad. econ. v.38 n.114
Santiago ago. 2001.
47
AsshownbelowinGraph4,accordingtotheHeritageFoundation,Chilehasoneofthe
highestrankingsinoveralleconomicfreedom,acombinationoftheelementsof:business
freedom,tradefreedom,fiscalfreedom,governmentsize,monetaryfreedom,investment
freedom,financialfreedom,povertyrights,freedomfromcorruption,andlaborfreedom.
Uruguayisrankedsecond,withMexicoandBrazilmakingmoderateimprovementsovertime.
ThescoresofArgentinaandVenezuela,however,haveworsenedovertime,especiallyinlight
ofArgentinasdefaultin2001andtheseriesofnationalizationsofprivateenterprisesthathave
occurredinVenezuelaundertheChavezpresidency.
Graph4.HeritageFoundationIndexofEconomicFreedom
85
80
75
70
65
60
55
50
45
40
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Source:HeritageFoundation,2007
Implications
Ingeneral,itisdifficulttodrawdefinitiveconclusionsaboutthecontributionof
governancestructureonthelevelofeconomicperformance,especiallysinceasdiscussed
earlierineachofthecaseanalysisimplications,federalismhasaratherambiguouseffecton
economicgrowth.Nevertheless,fromtheindicatoranalysispresentedabove,thefollowing
trendsemerge:
48
1. UnitarygovernmentsinLatinAmericaappeartohavethepoliticalconsensustopromote
policieswhichincreasethelevelofeconomicfreedom.ChileandUruguayhaveahigher
rankingintermsofeconomicfreedom,althoughthegaphasdeclinedwithtime.As
aforementioned,unitarygovernmentsgenerallyhavegreaterpoliticalconsensusnecessary
topasscomprehensiveeconomicreforms.Ingeneral,unitarygovernmentsreducethe
overallnumberofpoliticalofficesavailable,whichinturn,reducesthelevelofpolitical
fragmentation.Incontrast,infederaldemocracies,layersofsubnationalactorsand
increasedlevelofpoliticalcompetitionpotentiallyincubatepotentialdissentto
macroeconomicreform,especiallywiththefragmentationofpoliticalparties.Asparties
fragment,mostnotablyinthecaseofBrazil,importantmacroeconomicreformsmaystallin
indefinitepoliticalcontestation.
2. Theeconomicperformanceofthefederalgovernmentsdoesnotappearconsistentwith
eachother.GDPpercapitaofthetwofederaldemocraciesBrazilandArgentina
representtheminandmaxoftheregion.Likewise,GDPgrowthratesoftenmovein
oppositedirections,asintheperiodfrom19851999,inwhichsignificantgrowthgainsin
BrazilcorrespondedtostagnationinArgentina,andviceversa.Theseresultsconfirmthe
analysisinthecaseimplicationssectionthatfederalismoftenresultsinmixedeconomic
performance,especiallyinlightoftheconstanttensionbetweencentralizationand
decentralizationofcentralgovernmentinvolvementintheeconomyandthecomplexityof
ascertainingpoliticalcapitalinafederationtopromotemacroeconomicreform.
3. Reformorienteddictatorshipunderunitarygovernmentspotentiallyincreaseseconomic
performance.ChilessignificantGDPgrowth,gainsinGDPpercapita,andhighrankingin
theeconomicfreedomindexsupporttheimplicationsthatunitarygovernmentsprovidethe
structureforreformorienteddictatorshipstoinstitutesignificantmacroeconomicreforms.
Asanecdotalsupportofthebenevolentdictatorshiptheory,itappearsthatsimilartoLee
KuanYewofSingapore,ChiangKaiShekofTaiwan,andGeneralParkofSouthKorea,
PinochetplayedaninstrumentalroleinChileseconomicmiraclethroughhisabilityto
implementausterereformsformacroeconomicstabilizationandfiscalrestraint.
Nevertheless,onemustkeepinmindthatmilitarydictatorshipsinotherLatinAmerican
countriesBrazil,Uruguay,andArgentinadidnotyieldsignificantimprovementsinany
economicindicators,especiallysincetherulingmilitaryelitesdidnotprioritizeeconomic
reformastheirpoliticalagenda.Likewise,Mexicosgreatesteconomicimprovementdidnot
49
correspondtoitsexperienceunderPRIdictatorship,butrather,withtheintroductionof
politicalcompetitionanddemocraticreforms.Inaddition,thehumancostsofsuch
dictatorships,quantifiedintermsofhumanrightsabusesandawideningincomegap,must
beweighedagainstthebenefits,especiallysinceeconomicgainsmaybeshortlived.
4. Despiteimplications#1and#3,increasingcentralizationpotentiallydecreaseseconomic
performance.Buoyedbyhighoilprices,onemayexpectVenezuelaseconomicindicatorsto
haveimproveddramaticallyinthemostrecentperiods.HighGDPgrowth,however,does
notcorrespondwithasubstantialimprovementinannualhouseholdconsumption,which
haslargelystagnatedordeclined.Mostsignificantly,theindexofeconomicfreedomhas
continuallydroppedinVenezuela,correspondingwithincreasinggovernmentcentralization
andgovernmentinvolvementintheeconomyundertheChavezadministration,manifested
inthenationalizationofforeigncompaniesandtheuseofpricecontrols.Hence,thedata
confirmstheanalysisthatsincefederalismpotentiallyintensifiespoliticalfragmentation
andcreatesapowervacuumforapopulistleader,thelackofinstitutionalcheckscoupled
withfiscalcentralizationcouldleadtodeterioratingeconomicfreedomandperformance.
Likewise,Menemsreformstocentralizecentralgovernmentcontrolovertheeconomy
precipitatedthecollapseoftheArgentineeconomyin2001,especiallyinlightofreforms
thatfailedtocurtailfiscalirresponsibilityattheregionallevel,yetheldtheeconomypegged
toanunsustainableexchangerate.
RightsIndicators
AsshowninGraphs5and6,themajorityofLatinAmericancountriesendured
repressivemilitaryregimesinthe1970s,whicheventuallydevolvedtocivilianrulebythemid
tolate1980s.Venezuelaistheexceptiontothistrend,inwhichthePrezJimnezmilitary
dictatorshiplostcredibilityin1958,givingwaytotruedemocraticreform.Asaresult,
VenezuelaenjoyeddemocraticpoliticalandcivilrightslongbeforeitsLatinAmericanneighbors.
Steadyimprovementsinpoliticalandcivilrightscanbeobservedinnearlyallofthe
countries,withexceptiontoVenezuela,whichhasexperiencedarecenterosionofrightsasa
resultoftheChavezpresidencyandincreasingreformstocentralizegovernmentandremove
importantchecksandbalances.AsshowninGraph5,Mexicospoliticalrightshavenot
improvedsignificantlyuntilrecentlyaconsequenceofPRIdominationandinstitutionalized
electoralfraud.Overall,increasingpoliticalrightscorrespondwithmanyfederaland
50
decentralizationreforms,whichemphasizedincreasingpoliticalrepresentationatthelocallevel
andpromotinggreaterautonomyofsubnationalactorstocheckcentralgovernment.
Graph5.FreedomHousePoliticalRights
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
1970-1974 1975-1979 1980-1984 1985-1989 1990-1994 1995-1999 2000-2006

Source:FreedomHouse,2007
Fromacivilrightsperspective(Graph6),themajorityofLatinAmericancountrieshave
experiencedamarkedimprovement,especiallyascivilianadvocacygroupsdenouncedthe
humanrightsatrocitiescommittedundermilitaryruleandasdemocraticgovernments
enshrinedcivilandhumanrightsinconstitutionalreforms,aselucidatedinearliercasestudy
section.Venezuela,however,istheexceptionasthegovernmenthasbecomeincreasingly
intolerantofdissidentopinion.ChileandUruguayhavemadethegreatestimprovementsasthe
devolutionofmilitaryrulehasleftlastingdemocraticreformswithanemphasisonthe
protectionofcivilrights.
51

Graph6.FreedomHouseCivilRights
6.0
5.0
4.0
3.0
2.0
1.0
0.0
1970-1974 1975-1979 1980-1984 1985-1989 1990-1994 1995-1999 2000-2006

Source:FreedomHouse,2007
Corruptionperceptionisanimportantmeasure,asitdirectlyaffectsthelevelof
governmentaccountability,efficiencyinresourceallocation,andthecapacitytoattractforeign
investment.Chileranksasoneofthemostcleanlyperceivedgovernmentsalegacyofthe
Pinochetregimethatemphasizedreductionofgovernmentinfluenceintheeconomy,
neoliberalreforms,andadesiretomodelgovernmentunderprivateenterprise.Augusto
Pinochethimselfoncesaid,[Militaryruleaims]tomakeChilenotanationofproletarians,but
anationofentrepreneurs."114Inordertoattractinvestmentandrestorebusinessconfidencein
Chile,Pinochetestablishedalegacyofstrictadherencetofiscalandmacroeconomic
accountabilityandcreatedacultureintolerantofcorruption,thoughhisownpersonal
corruptionremainsasourceofhypocrisy.115Uruguayhasalsomadeimportantinstitutional
arrangementsagainstcorruption,thusbecomingLatinAmericassecondleastcorruptcountry,
accordingtoTransparencyInternational.Forexample,onAugust12,1997,Uruguaypassedinto
114
Dandan, Zaldy. "Gracias mi general" Marianas Variety. 2006.
<http://www.mvariety.com/editorialpage/editorial01.htm> Accessed: April 12, 2008
115
Kornbluh, Peter. The Secret Pinochet Portfolio. National Security Archive. 15 March 2005.
<http://www.gwu.edu/~nsarchiv/NSAEBB/NSAEBB149/index.htm> Accessed: April 13, 2008
52
lawtheInterAmericanConventionagainstCorruption.Asarelativelysmallcountry,Uruguay
hasmaintainedrelativelyeffectiveoversightovertheaccountabilityofitsofficialsand
institutedacultureintoleranceofcorruption.116
ArgentinaandBrazilhavecurrentlyrelativelysimilarcorruptionperceptionsmeasures,
althoughArgentinaexperiencedamarkeddeteriorationincorruptionperceptionintheperiod
of19851994.Theeconomicshocksanditsconsequencesoferodingthemiddleclassand
causinggreatunemploymenterodedmanyimportantinstitutionalchecksoncorruption.117In
addition,theMenemanddelaRaadministrationswereassociatedwithrampantpolitical
corruption,includingpanderingspoilstothemassesinreturnforelectoralsecurity.118Mexico
hasmademoderategainsinreducingtheperceptionofcorruption,largelywithelectoral
reformandtheendingofPRIdomination,whileBrazilhasmoreorlessremainedatsimilar
levelstothepast.Perhapsasaconsequenceofoilrents,Venezuelahasoneoftheworst
corruptionperceptionsranking,especiallysincealargeportionofoilrevenuepassesthrough
thegovernment.AccordingtoGustavoCoronel,corruptioninVenezuelastemsfromthreemain
causes:motive,opportunity,andimpunity.Asanexampleoftheresourcecurse,thousandsof
publicemployeeswhofeelunderpaidmonetizetheirpublicofficesillegally,protectedbythe
lackofadministrativeproceduresandcontrols,chaoticmanagementofbureaucrats,andlow
possibilityofpenalization.Coronelestimatesthatapproximately$10billionhasbeenstolen
undertheChavezadministrationwithnopunitivemeasures.119
Manyexpertshaveintensivelystudiedtherelationshipbetweendecentralizationand
corruption,especiallysincedecentralizationhasachievedacceptabilityasadevelopmental
paradigmagainsttheinefficiencyofcentralizedstates.Intheory,decentralizationcanreduce
corruptionandminimizetheundersupplyofinfrastructuresupportforprivateinvestors
throughinterjurisdictionalcompetition.Inaddition,decentralizationreformscanconceivably
hardenbudgetconstraintssothatgovernmentsdonotbailoutinefficiententerprises.120
Simultaneously,however,decentralizationintroducesnewproblemsofagency,oversight,and
interjurisdictionalexternalities.Anempirical,crosscountrystudybyFismanandGatti
116
Inter-American Convention Against Corruption. Organization of American States, 1997.
<www.oas.org/juridico/English/Sigs/b-58.html>
117
Svampa, Maristella. La Sociedad Excluyente. Taurus, 2005.
118
Schneider, Donald. Latin American Political History. Boulder: Westview, 2007.
119
Coronel, Gustavo. Curbing Corruption in Venezuela Journal of Democracy. Vol 7, No 3, July 1996, pp. 157-
165.
120
Bardhan, Mookherjee. Decentralization, Corruption And Government Accountability: An Overview Handbook
of Economic Corruption, 2005.
53
confirmedthatastrongnegativerelationshipexistsbetweenfiscaldecentralizationin
governmentexpenditureandcorruption.Theoretically,bydevolvingpowertolocallevels,
centralizedbureaucracylosesitsmonopolytodivertresourcestothenonpoor,especiallyin
lightofwillingnesstopaybribes.121Nevertheless,thepredictivecapacityofthemodelremains
nebulous,astherelationshipbetweendecentralizationandcorruptiondependsonlegalorigins
andothercountryparticularisticelements.
Graph7.TransparencyInternationalCorruptionPerceptionsIndex
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
1970-1974 1975-1979 1980-1984 1985-1989 1990-1994

Source:TransparencyInternational,2007
Implications
Regardlessofgovernancestructure,rightsperformanceinLatinAmericahas
substantiallyimprovedasmilitarygovernmenttransitionedtocivilianrule.Thefollowingtrends
emergefromthedata:
1. Unitarygovernments(especiallywhendemocratic)appeartobelesscorrupt.Chileand
Uruguay,bothunitarygovernments,havealowerlevelofperceivedcorruption.Especially
sinceunitarygovernmentsremoveadditionallayersofbureaucracyandhavegreater
centralgovernmentoversightonpublicfundsandprojects,suchgovernancestructuresmay
121
Fisman, Gatti. Decentralization and Corruption: Cross-Country and Cross-State Evidence. World Bank, 1999.
54
effectivelyreducethelevelofcorruption.Conversely,thelargefederaldemocraciesrankat
thehigherendofperceivedcorruption.Intheory,introducingmoregovernmentlayersand
creatingacomplexsystemofintergovernmentaltransferspotentiallyincreasesthe
opportunityforcorruptactivities.Inaddition,increasedpoliticalcompetitionpotentially
incentivizesvotepanderingactivitiesandpotentialclientelism.Theseresultscoincidewith
publishedempiricalstudiesthatinvestigatethelinkbetweencorruptionandfederal
governancestructures.AccordingtoanempiricalstudybyPlekhanov,federalstructureof
governmentmaycontributetothepersistenceofcorruption,asvotersmaybeincentivized
toelectrentseeingpoliticiansfortheirownpersonalbenefit.122Plekhanovsmodelreveals
thatcorruptionatthefederallevelmaybecontagiousattheregionallevelaswell,hence
contributingtothepersistenceofcorruption.Nevertheless,centralizationinfederal
governmentsmayalsoincreasethelevelofcorruption,asinthecaseofBraziland
ArgentinaundermilitaryruleandinVenezuela,whereconcentrationoffiscalpowerandoil
revenueatthecentrallevelhasbredrentseekingbehaviorsandspoils.Consequently,
findingtheappropriatebalancepresentsaformidablechallenge.
2. Decentralizationandfederalismprovideaninstitutionalcheckfordemocratic
accountabilityandhelpinrightsperformance.Brazil,Argentina,andMexicohaveboth
experiencedasubstantialimprovementincivilandpoliticalrights.InthecaseofMexico,
democratizationcorrespondedwithincreasingdecentralizationandenforcementoffederal
preceptsestablishedintheconstitution,especiallysincesuchreformsincreasedpolitical
competitionandopenedupnewchannelsofrepresentationanddissent.Similarly,inBrazil
andArgentina,theinstitutionoffederalrepubliccreatedaninstitutionalstructurethat
wouldpurposefullydiffusethecentralizedpowerstructurethathadexistedundermilitary
rule.Byintroducingnewlayersofrepresentation,federalismprovidesamechanismto
checkpotentialgovernmentabuseofcivilrightsandtointroducemoreavenuesofpolitical
participationandtheexerciseofdemocraticprerogatives.
3. Unitarygovernmentshaveaccomplishedsimilarimprovementsinrightsperformance
throughenhancingdirectdemocracyandmunicipalrepresentationaformof
decentralizationatalocallevel.Theprofoundimpactoftherisingimportofmunicipal
politicsinUruguayandChileattesttothefactthateveninunitarygovernments,
122
Plekhanov, Alexander. "Endogenous Corruption in a Federation," The B.E. Journal of Economic Analysis &
Policy: Vol. 7: Iss. 1 (Topics), Article 20.
55
decentralizationandincreasingrepresentationatthelocallevelhaveapositiveeffecton
democraticaccountabilityandrightsperformance.AsinthecaseoftheFrenteAmpliosrole
increatingparticipatoryrepresentationatthemunicipallevelinUruguayandintensification
ofplebiscitarypoliticsinChile,unitarygovernmentshaverecognizedthebenefitsof
creatingdemocraticinstitutionsatthelocallevelaformofdecentralizationthatparallels
thereformsofthelargestfederalrepublicsatasmallerscale.Decentralizationthrough
municipalizationthusimprovespoliticalrepresentationandcivilrights.
HealthandOtherSocialIndicators
AlthoughChileoutpacedtherestofLatinAmericaintheearlierperiods,themajorityof
LatinAmericancountrieshaveconvergedintermsofprovidingDPTimmunization(Graph8).In
explainingChilesinitialabilitytoreachsuchalargeproportionofchildren,thePinochet
regimedecentralizedthecentralizedhealthcaresystem,shiftingresourcesawayfromthe
hospitalsinthemajorcitiestomorewidelydispersedprimaryhealthcareclinicsunder
municipalcontrol,whichemphasizedpreventativemeasuressuchasimmunizationand
educationinbasichygiene.123
Infact,Brazil,Argentina,Mexico,Uruguay,andVenezuelaallthecountriesinthiscase
studyhavepursuedhealthcaredecentralizationreformsinthepasttwentyyears,tovarying
degreesofsuccess.Atthebeginningofthe1980s,healthcaresystemsinLatinAmerica
generallyprovidedalowqualityofhealthservicesandusedfinancialresourcesinefficiently.
Decentralizationofhealthcareservedasanavenuetoincreasetheefficiencyand
responsivenessofgovernmentbecausethedevolutionofresourceallocationdecisionsto
locallyelectedleaderswouldbettermatchthemixofservicesproducedbythepublicsector
andthepreferencesofthelocalpopulation.124Asaresultofdecentralization,betteraccessto
healthforthepoorandemphasisonpreventativecareemerged,whichexplainsthedramatic
improvementinimmunization.Throughoutthepasttwodecades,theWorldBank,United
Nations,USAID,andInterAmericanDevelopmentBankallhaveemphasizedtheimportanceof
decentralizationintheirhealthcarepolicyrecommendationsandhealthprograms.
123
Ward, Jonathan. Latin America: Development and Conflict Since 1945. Routledge, 2004.
124
Zipperer, Melanie. Latin American Experiences with Decentralization of Health Care: The Cases of Brazil and
Bolivia. World Bank Group. December 1999.
56

Graph8.Immunization,DPT(%ofchildrenages1223months)
110.0
100.0
90.0
80.0
70.0
60.0
50.0
40.0
1970-1974 1975-1979 1980-1984 1985-1989 1990-1994

AsillustratedinGraph9,themajorityofcountrieshaveasimilarupwardtrendinlife
expectancy,especiallygiventhesimultaneousreformsinthehealthcaresystemand
improvementintheoverallmacroeconomiccontext.ThebenchmarkcasesofArgentinaand
Brazilexhibitwidedeviation,asArgentinahasalifeexpectancyatthemedian,whileBrazilhas
thelowestlifeexpectancythroughouttheperiod.EspeciallysinceBrazilhasamuchgreater
population,assuringaccesstohealthcareandconfrontingsevereincomedisparitieshave
poseddifficultpolicychallenges.AstudybyMessiasconfirmedthatilliteracyratesandincome
disparitieswerenegativelyassociatedwithlifeexpectancyinBrazil,thusconfirmingthe
relationshipbetweenincomedistributionandhealthoutcomes.125AsBrazilhasthehighestGINI
coefficientofallthecountriesinthiscasestudy,itscomparativelowerlifeexpectancyatbirth
mayreflecttheperniciouseffectsofsocioeconomicinequality.MexicoandChileexhibitthe
greatestimprovementinlifeexpectancyatbirth,whileUruguay,Argentina,andVenezuela
illustratemodestgainsovertime.
125
Messias, Erik. Income Inequality, Illiteracy Rate, and Life Expectancy in Brazil American Journal of Public
Health. 2003 August; 93(8): 12941296.
57
Graph9.LifeExpectancyatBirth(Years)
80.0
75.0
70.0
65.0
60.0
55.0
1970-1974 1975-1979 1980-1984 1985-1989 1990-1994 1995-1999 2000-2006

Inregardstothepercentageofthepopulationfollowingbelowthe$2/dayPPP
threshold(Graph10),Brazil,Mexico,andChilemadesubstantialimprovements,whilepoverty
increasedsignificantlyinArgentinaandVenezuela.ThepovertyheadcountinUruguayhas
remainedroughlysimilarthroughoutthefourdecadeperiod.Therecentdeteriorationinthe
povertyheadcountpercentageinArgentinacanbeexplainedbytheexchangeratedevaluation
andfinancialcrisisof2001,inwhichmanyresidentseitherlosttheirsavingsorfoundtheir
valueerodedbyskyrocketinginflation.Atthebeginningofthe1980s,Argentinahadoneofthe
lowestpovertyratesinLatinAmerica,butnowranksatthemedian.
Intheearly1990s,povertyincreasedinVenezuelaasaresultofseriesofneoliberal
reformsthatprivatizedvariouspublicservicesaswellasimportantstateownedenterprisesin
oilandmining,thusspurringunemployment.Itremainstobeseenwhetherthenationalization
ofoilandnaturalresourcecompanieswillimproveVenezuelaspovertygap.SinceChavez
garnersthegreatestsupportfromimpoverishedbarrios,hisantipovertyrecordhasadramatic
impactonhispoliticalcapital.
58
Graph10.Povertyheadcountratioat$2aday(PPP)(%ofpopulation)
45.0
40.0
35.0
30.0
25.0
20.0
15.0
10.0
5.0
0.0
1970-1974 1975-1979 1980-1984 1985-1989 1990-1994

Implications
Administrativefederalismanddecentralizationimprovesaccesstohealthandother
publicgoods.Regardlessofgovernancestructure,decentralizationofhealthandsocialservices
appeartoimproveaccess.Forexample,underPinochetsunitarygovernment,shifting
resourcesawayfromthehospitalsinthemajorcitiestomorewidelydispersedprimaryhealth
careclinicsundermunicipalcontrolaformofdecentralizationcontributedtohighratesof
immunizationandotherpreventativemeasuressuchaseducationinbasichygiene,which
provedessentialforoverallhealth.Asaresult,ChileoutpacedtherestofLatinAmericaduring
thisperiod,inwhichallothercountriesutilizedcentralizedhealthcaresystems.
Infact,Brazil,Argentina,Mexico,Uruguay,andVenezuelaallthecountriesforthis
casestudyhavepursuedhealthcaredecentralizationreformsinthepasttwentyyears.As
shownintheindicators,forallofthesecountries,lifeexpectancyatbirthhasgreatlyincreased
andpovertyheadcounthavesignificantlydecreased,thussuggestingaconnectionbetween
decentralizationandincreasedaccesstohealthcareandservices.Ingeneral,decentralization
ofsocialservicesincreasestheefficiencyandimpactofpublicgoodsandresourcesbecause
59
localagentsgenerallyhaveabetterunderstandingofthepreferencesandprioritiesofthelocal
population.Unsurprisingly,theindicatorsconfirmtheanalysisinthecasestudysectionthat
linkeddecentralizationreformstogreaterequityinaccesssocialgoods.Asaresult,thedata
supportsthepolicyrecommendationsofvariousinternationaldevelopmentalagencieswhich
advocatedecentralizationasamechanismforimproveddeliveryofpublicgoods.Asfederal
governmentsrequireapoliticalstructureofdecentralization,assignsignificantadministrative
responsibilitiestosubnationalactors,andgivesubnationalgovernmentsgreaterfiscallatitude,
onemayreasonablyconcludethatfederalismprovidesaninstitutionalframeworkthat
facilitatesanoptimalstructureforthedeliveryofpublicgoodsandsocialwelfareprograms.
RuralUrbanDynamic
Toanalyzewhetherfederalismhascontributedtomoreeffectiveprovisionofservicesat
botharuralandurbanlevel,onecananalyzedisparitiesinaccesstobasicneeds.Intheory,
decentralizationwouldaidindecreasingtheruralurbandividebyconcentratingresource
allocationandaccessatthelocallevel.AsshowninTable10,urbanizationhasoccurredover
thepastthreedecadesthroughoutLatinAmerica,dramaticallyalteringtheruralurban
composition.WiththeexplosionofprimatecitiessuchasSaoPaolo,MexicoCity,andBuenos
Aires,manyruralresidentshavemigratedtothecitiesinsearchofgreateropportunities,only
toformslumsandsettlementsoutsideofthecitysfringes.Throughouttheperiod,Uruguay
hasoneofthemosturbanizedpopulationsoutofthesixcountries.
Table10.UrbanPopulation(%oftotalpopulation)
Urban population (% of total) 1970-1974 1975-1979 1980-1984 1985-1989 1990-1994 1995-1999 2000-2006
Brazil(Fed/Dem) 58.2 64.0 69.0 72.7 76.0 79.2 83.0
Argentina(Fed/Dem) 79.7 81.8 83.7 85.8 87.5 88.6 89.7
Venezuela(Fed/Dem,lowA) 73.3 77.2 80.4 82.7 85.6 89.2 92.5
Uruguay(AFed/Dem) 82.8 84.2 86.1 87.9 89.6 90.8 91.7
Mexico(Fed/Dict) 60.5 64.2 67.6 70.8 72.9 73.9 75.5
Chile(Unitary/Dem) 76.5 79.5 81.8 82.9 83.7 85.0 86.9
Benchmark(Average) 69.0 72.9 76.4 79.3 81.7 83.9 86.4
60

Table11.AccesstoImprovedSanitationFacilities(Ruralvs.Urban)
Improved sanitation facilities (% of total population with
access) 1990-1994 1995-1999 2000-2006
Brazil(Fed/Dem) 71.0 73.0 74.5
Argentina(Fed/Dem) 81.0 86.0 90.0
Venezuela(Fed/Dem,lowA) NA 68.0 68.0
Uruguay(AFed/Dem) 100.0 100.0 100.0
Mexico(Fed/Dict) 58.0 67.0 77.0
Chile(Unitary/Dem) 84.0 87.0 90.5
Benchmark(Average) 76.0 79.5 82.3
Improved sanitation facilities (% of rural population with

access) 1990-1994 1995-1999 2000-2006
% Difference (Rural and Total Population) 1990-1994 1995-1999 2000-2006

Argentinahasoneofthelowestruralurbangaps,whileBrazilandMexicohaveoneof
thehighest.Althoughallthreearefederalgovernments,itremainsdifficulttoconcludethat
federalismcontributestothisdisparity.ChileandUruguay,bothunitarycountries,haveamuch
lowerruralurbandisparity,partlysinceChilehasanoverallhigherlevelofincomeandUruguay
facesloweradministrativedifficultyinprovidingaccess,givenitssmallsize.
Implications
1. FederalgovernmentsinLatinAmericaappeartobecharacterizedbyagreaterurbanrural
gap.Ingeneral,MexicoandBrazilexhibitasignificantaccessgapbetweentheruraland
totalpopulation.Inperspective,thesetwocountrieshavethegreatestruralpopulationasa
percentageoftotalpopulation.Generally,federalgovernmentsaregeographicallylarger
126
The data on Uruguay does not seem to be very reliable, especially given the claim of 100% access to sanitation
facilities in urban areas and 99% in rural areas.
61
thanunitarygovernments.InLatinAmerica,Brazil,Argentina,andMexicoclearlydwarf
UruguayandChileintermsoftotalgeographicarea.Asaresult,suchlargegovernments
utilizefederalismasamechanismtosolvethechallengesofoversightandrepresentation
overanexpansivegeography.Especiallyinlightofahighruralurbangap,countriesmay
perceivefederalismasaviablemethodofincreasinglocalrepresentationthatwould
effectivelyallocateresourcestodifficulttoreachareas.Asaforementioned,theMexican
governmentjustifiedfederalreformstoimprovetheefficiencyandequalityofresource
allocation.Hence,thisimplicationsuggeststhatahighruralurbandivide,especiallywhen
coupledwithalargegeography,maycompelacountrytowardsadoptingfederalismasa
governancestructure.
2. Decentralizationreformspotentiallyaidintheprocessofreducingtheruralurbangap.As
aforementioned,thepersistenceofaruralurbangapoveralargegeographicareamay
provideacompellingreasontocreatefederalinstitutions.Forexample,politicianshave
invokedfederalismanddecentralizationreformsasamechanismtoreduceinequities
acrossstatesinMexico,asinthecaseofpubliceducationandhealth.Withtheexceptionof
Brazil,theurbanruralaccessgaphasdecreasedoverthelastthreeperiods,coincidingwith
secondgenerationdecentralizationreforms.Inparticular,Argentinaprovidesaclear
exampleofasubstantialreductionintheurbanruralaccessgap,inwhichthegapfellfrom
36%from19901994to11.5%inthemostrecentperiod.Likewise,Mexicoregistereda7%
improvement.Althoughunitarygovernmentshavealsoimproved,themagnitudeofchange
issmaller.Hence,theindicatorappearstoconfirmtheimplicationthatfederalinstitutions
canaidintheprocessofreducingaruralurbandivide.
Conclusions
Fundamentally,federalismsappealderivesfromageneralconvictionthat
decentralizationimproveseconomicandpoliticalperformanceandaccountability.Ananalysis
ofthegovernancestructure,historicalevolution,andvariouseconomic,rights,andsocial
indicatorsofsixLatinAmericancountriessuggestthatfederalismprovidespositivebenefits,
thusconfirmingtheInmansconclusionthatdecentralizationprovidesuniquebenefits.
Federalismsaggregatecontributiontoeconomicandrightsperformance,however,depends
largelyontheactualpoliticaldynamicparticulartoeachcountry.Asillustratedintheanalysis,a
cursorysurveyoftheConstitutionandtheuseofbroadindicators,suchasaveragerevenue
assignmentandpresenceofdemocracyoverthepast40years,maskthefactthatinactuality,
62
countriessuchasMexicoandVenezuelamayhavenottheirexplicitpoliticalobjectives
enumeratedintheConstitution.Thefollowingfourconclusionssummarizethemainfindingsof
thecasestudy:
1. Diffusionofpoliticalpowerimprovesrightsperformanceanddemocraticaccountability,
ofwhichfederalismprovidesanimportantinstitutionalframework.
InMexico,thestrengtheningoffederalinstitutionsopenedupnewelectoralspacesthat
promotedpoliticalpartycompetitionthateventuallyledtoreformanddemocratization.In
addition,thefederalreformsbredcoalitionsthatprovidedanimportantinstitutionalcheck
againstexistentpowerstructuresandPRIdomination(Pages3236,5052).Likewisein
ArgentinaandBrazil,federalismplayedanimportantroleinstrengtheningdemocratic
institutionsafteralongperiodofmilitaryrule(Pages78,1112,1415,1819,5052).The
constitutionalstructureofdemocraticfederalismprovidedanimportantcheckongovernment
toensurerepresentationatlocallevels,whichmilitaryrulehadsuppressed(Pages78).
Federalismalsoprovidedanessentialconstraintonpresidentialorexecutivepowera
mechanismtopreventpoliticalrightsabusesthathadoccurredundermilitaryrule(Page11).
InunitarygovernmentssuchasChileandUruguay,increasingmunicipalizationaform
ofdecentralizationhasstrengthenedpoliticalvoice,participation,andrepresentationatthe
locallevel(Pages2729,3839).AsUruguayimplementedelectionsatthemunicipalleveland
improvedtheinstitutionsofdirectdemocracy,traditionsofdirectandparticipatorydemocracy
haveconsiderablyprogressed,fromdirectcitizenreferendumstotheriseofcivilsociety
organizationsaimingtoengagemunicipalgovernments(Pages2731).Infact,despitethe
Constitutionsdeclarationofunitarygovernance,thegovernmentofUruguayreflectsahigh
degreeofpoliticalandfiscaldecentralization,similartothatoffederalrepublics(Page27).
LikewiseinChile,therisingappealandpredominanceoflocalofficehascreatednewchannels
ofpoliticalparticipationinplebiscitarypoliticsandincreasedthelevelofrepresentationatthe
locallevel(Page42).
Conversely,Venezuelahasslowlyincreasedthelevelofcentralization,movingaway
fromitslongfederaltraditions(Pages2224)mostnotablyintherecentChavez
administration.Overall,federalismhasaratherambiguouseffectondemocraticaccountability
andrightsperformanceinVenezuela.Althoughthecurrentweakeningoffederalinstitutions
undertheChavezregimehasdecreasedrightsperformance(Pages2324,5052),federalism
63
itselfhadcontributedtoanewpoliticalcontextthatfacilitatedtheriseofpopulistleadersdue
topoliticalfragmentation(Page2526).Likewise,asLatinAmericasmostcentralizedfederation,
theconcentrationoffiscalpoweratthecentralgovernmentreducesthecapacityofstateand
localgovernmentstochecksuchpopulistleaders,whohavetheresourcestoenactbroadpolicy
changes,oftenfinancedbyoilrevenues(Page2324).Hence,asshowninthecaseofVenezuela,
fiscalcentralizationincreasedtheeaseofpoliticalcentralization,especiallysincesubnational
governmentsdependontheresourcesandsupportofthecentralgovernment.Nevertheless,
thefederalsysteminVenezuelahasprovidedimportantchecksagainstChavezsincreasing
politicalagendatoconsolidatehisexecutivepower(Page26).
2. Thecontributionoffederalismtoaggregateeconomicperformanceremainsambiguous.
Federalismseffectoneconomicperformanceremainsambiguous,seenthroughthe
examplesofBrazilandArgentina(Pages4350).AsBrazilshistoryattests,variousinstitutional
factorsinfluencetheabilityoffederalismtoaffectcentralgovernment.InBrazil,federalism
constrainedtheabilityofthepresidenttoenactmuchneededeconomicreformsintheearly
1980sduetoahighdegreeofpoliticalfragmentationanddissent.Asaresult,statedebtsto
federalgovernmentburgeonedandstategovernmentsstalledmuchneededmacroeconomic
stabilizationpolicies.FederalismundertheCardosoregime,however,differeddramatically.By
managingtoobtainmultipartysupportandovercomingthedivisivenatureofpolitical
fragmentation,CardosocreatedcoherencyandconsensusintheBraziliangovernment,thus
managingtocontrolinflationandimprovemacroeconomicstabilitywithbroadsupportfrom
Congress(Page1516).InArgentina,centralizationoftaxrevenuesandfiscalpowerinthe
centralgovernmentundertheMenemadministrationledtoinitialmacroeconomic
improvementincomparisontoearlieradministrationsthathadagreaterleveloffiscal
decentralization,theresultswereshortlivedasneoliberalreformsfailedtodeliversustained
benefits(Page1920).
InMexico,federalreformsofthe1990scoincidedwitheconomicliberalizationand
profoundeconomictransition,whichgeneratedincomegrowth,investment,andproductivity
increases(Pages37,4350).Thedirectlinkbetweenfederalismandeconomicreform,however,
remainstenuous,especiallysincefiscalfederalismintroducednewproblemsoffiscal
irresponsibilityatthesubnationallevel(Pages89,37).Fiscalirresponsibility,however,can
alsoexistinunitarygovernments,asinthecaseofUruguay,inwhichfinancialindiscretionby
subnationalactorsoccursthroughaccumulatingdebtswithothergovernmentagenciesand
64
obtainingdiscretionarytransfersfromthecentralgovernment(Page28,31).Asdiscussedinan
InterAmericanDevelopmentBankreport,firstgenerationdecentralizationreformsintheearly
1990sinLatinAmericaoftenfailedtotakeintoaccountmarketbasedprinciples,suchas
incentivesandpublicchoicetheory,thusdestabilizingtheoverallmacroeconomicframework,
especiallyinlightofhaphazardgovernmentspending(Pages89).
Incomparingfederaltounitarygovernments,Chilesetsanexampleofaunitary
governmentwithsignificanteconomicperformance.Pinochetspurportedeconomicmiracle
inChilereflectslessonitsunitarystructure,butonthespecificpoliciesoftheadministration
(Page3839,4350).ThemilitarydictatorshipsinArgentina,Brazil,andUruguayallcentralized
governmentandcreatedvaryingdegreesofunitaryrule,butfailedtoaccomplish
macroeconomicreform.Nevertheless,unitaryandcentralizedrule,however,doesincreasethe
easeofenactingcomprehensivereform(Pages3839,4142,49).Withoutpoliticalcompetition
ordissent,Pinochetcouldimplementunpopularpolicies,suchasthesaleofstateowned
enterprisesandtheprivatizationofpublicutilities.Thesocialcosts,however,remaingreat.In
addition,dictatorshipshavealsoentrenchedopportunitiesforacutecorruptionandthemisuse
ofpublicresourcesforprivategain.Asurveyofdictatorshipsintheworldtodayexposesthe
factthatplentyofautocraticrulersexistwithoutaccomplishingeconomicreform.
3. Decentralizationimprovesaccesstopublicgoods,inbothfederalandunitary
governments.
Throughoutthepasttwodecades,theWorldBank,UnitedNations,USAID,andInter
AmericanDevelopmentBankhaveallemphasizedtheimportanceofdecentralizationinsocial
welfareprograms.Intheory,decentralizationofsocialservicesincreasestheefficiencyand
impactofpublicgoodsandresourcesbecauselocalagentsareoftenmoreattunedtothe
preferencesandprioritiesofthelocalpopulation.Asconfirmedintheindicatorsandanalysisof
historicalevolution,decentralizationandadministrativefederalismhaveincreasedaccessto
socialgoods,loweredregionalinequities,andimprovedefficiencyinresourceallocationby
takingintoaccountlocalpriorities(Pages5662).Forexample,inArgentina,decentralization
reducedintraregionaldisparitiesandincreasedonaggregatethelevelofhumandevelopment
intheareasofhealthandeducation(Page19).
Decentralizationbenefitsbothunitaryandfederalgovernments.Mostnotably,under
Pinochetsunitarygovernment,themunicipalizationofthehospitalsystemcontributedtohigh
65
ratesofimmunizationwellabovetheperformanceofallotherLatinAmericancountries
whichhadadoptedcentralizedhealthsystems(Page5657).Infact,allthecasestudycountries
Brazil,Argentina,Mexico,Uruguay,Venezuela,andChilehavepursuedhealthcare
decentralizationreformsinthepasttwentyyears.Asshownintheindicators,lifeexpectancyat
birth,immunization,andpovertyheadcountreflectaconnectionbetweendecentralizationand
increasedaccesstohealthcareandservices(Pages5660).Actinglikeservicedeliveryagents,
municipalgovernmentsinChileprovidedlocalpublicserviceonacosteffectivebasis,without
havinglocalgoverningpower(Page3839).InUruguay,thereorganizationofmunicipal
administrationincreasedthelevelofsocialaccountability,thusfacilitatingsocialinvestment
andaccesstourbanpublicgoods(Pages2829).

Inregardstofederalismsuniquecontribution,federalgovernmentsgenerallyrequirea
politicalstructureofdecentralization.Inmostcases,subnationalactorsinfederalcountries
havesignificantadministrativeresponsibilitiesandgreaterfiscallatitude,thusprovidingan
institutionalframeworkthatfacilitatesanoptimalstructureofdeliveryofpublicgoodsand
information.Nevertheless,decentralizationreformscanstillbeeffectivelycarriedoutinunitary
governments,whichusemunicipalchannelsandotherregionalgovernmentnetworks.
Conversely,federalgovernmentsthathaveadegreeoffiscalcentralizationandlimited
administrativeresponsibilitiesatthesubnationallevel,suchasinMexicobeforethe1990s,do
notharnessthefullbenefitsofdecentralization(Pages3233,36).
4. Federalism,however,potentiallycreatespoliticalfragmentationthatmayblock
importantreformsorgiverisetoapowervacuumforpopulistleaders.Asaresult,rights
performance,democraticaccountability,andeconomicandsocialprogressmaystallor
deteriorate.
Mostnotably,inVenezuela,theenhancedpoliticalcompetition,thedivisionbetween
regionalandnationalelections,thereelectionofgovernorsandmayors,andanincreasein
theirfinancialautonomyallallcharacteristicaspectsoffederalismcontributedtothe
fragmentationofthepartysystemandtothepersonalizationofthevote(Pages23,2526).127
Withintensifiedpoliticalcompetition,governorsandmayorstookadvantageofwindowsof
opportunitytoenhancetheirownpoliticalpowerandweakenthepowerofpartyleaders.As
accountability,transparency,andpoliticalcompetitionincreased,personalizationofthevote
127
66
underminedentrenchedpowers,givingrisetopopulistoutsiderssuchasChavez.Nevertheless,
accordingtoPenfoldBecerra,despiteChavezssuccessinincreasingpresidentialpower,he
remainsunabletounderminethefullfederalsystem,especiallysincedirectelectionofregional
andsubnationalauthoritiescheckexecutiveinfluenceanexampleoffederalismspositive
contributiontodemocraticaccountabilitythroughincreasedlayersofpoliticalcompetitionand
oversight(Page26).
AlthoughfederalismstalledeconomicreforminBrazil(Page15)andcreatedapolitical
vacuuminVenezuela,federalismactuallystrengtheningaunifiedcoalitionagainstthePRIin
Mexico,enhancingpoliticalcohesivenessratherthanunderminingthepartysystem.Infact,
federalismplayedanessentialroleinimprovingelectoraltransparencyandfacilitatingthe
presidentialtransitionfromthePRIpartytotheAllianceforChangecandidateVicenteFoxin
2000(Page3536).Asaresult,determiningtheneteffectoffederalismonthepartysystem
requirescarefulanalysisoftheuniquepoliticalcontextofthecountry.
Ingeneral,thefindingsappeartosupportInmansconclusions.Thecasestudiesconfirm
thatdecentralizationuniquelycontributestotheprotectionofproperty,political,andcivil
rights.Inaddition,althoughunitarygovernmentscanbenefitfrompolicydecentralization,
federalismprovidesanimportantinstitutionalframeworktomaintainandsupport
decentralizationwithadequatefiscalandadministrativesupport.128Theeffectof
decentralizationandfederalismoneconomicperformanceinLatinAmerica,however,remains
ambiguous,contrarytoInmansoriginalfindings.Histhirdconclusion,thataddingpolicy
decentralizationdoesnotimproveeconomicorrightsperformanceindictatorshipsremains
untestedasthemilitarydictatorshipsofLatinAmericacorrespondedwithaperiodof
centralization.AlthoughChilebenefitedeconomicallyfromcentralization,theothercountries
sufferedfromsevereeconomicmismanagement,whichfurthersparkedtheimpetusforreturn
tocivilianrule.Inallcases,politicalandcivilrightssufferedundermilitarydictatorship.
Ingeneral,theinsightsofthiscasestudyprovideaseriesofusefulpolicyimplicationsfor
LatinAmericancountriesbyanalyzingtherelationshipbetweendecentralizationand
governancestructureoneconomic,rights,andsocialperformance.AsLatinAmericasthree
largestcountriesBrazil,Mexico,andArgentinaarefederalrepublics,comprising65%ofthe
128
Inman, Robert. Federalisms Values and value of Federalism NBER Working Paper, January 2008.
67
regionspopulation,understandingthedynamicsoffederalismandanalyzingitsassociated
politicalandeconomicoutcomesisessentialtopromotinghumandevelopment.
68
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University of Pennsylvania

Impact of Governance Structure on Economic and

This paper is posted at ScholarlyCommons. http://repository.upenn.edu/wharton_research_scholars/50

This thesis or dissertation is available at ScholarlyCommons: http://repository.upenn.edu/wharton_research_scholars/50

Assignment(A):% Provincial Democracy(Yes=1, ChosenCases(GDP

Share of Total Revenue Share of Total Expenditures

FreedomHousePoliticalRights 5 4 3.4 2.2 2.2 2.4 2.4

FreedomHousePoliticalRights 4 4.4 4 1.8 1.4 2.2 2.1

FreedomHousePoliticalRights 2 1.4 1 1 1.8 2.4 3.3

FreedomHousePoliticalRights 4 5.6 5.2 1.8 1.2 1.4 1.0

FreedomHousePoliticalRights 4.5 4 3 3.8 4 3.6 2.1

Chile - Tax Revenues by Level of Government 1990 1995 2000

FreedomHousePoliticalRights 4 6.8 6 5.4 2 2.2 1.6

Brazil (Fed/Dem) Argentina (Fed/Dem)

Brazil (Fed/Dem) Argentina (Fed/Dem)

Brazil (Fed/Dem) Argentina (Fed/Dem)

Brazil (Fed/Dem) Argentina (Fed/Dem)

Brazil (Fed/Dem) Argentina (Fed/Dem)

Brazil (Fed/Dem) Argentina (Fed/Dem)

Brazil (Fed/Dem) Argentina (Fed/Dem)

Brazil (Fed/Dem) Argentina (Fed/Dem)

Brazil (Fed/Dem) Argentina (Fed/Dem)

Brazil (Fed/Dem) Argentina (Fed/Dem)

Improved sanitation facilities (% of rural population with

% Difference (Rural and Total Population) 1990-1994 1995-1999 2000-2006

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