UNRAVELING THE POLITICS OF DECENTRALIZATION: ARGENTINA AND SPAIN IN COMPARATIVE PERSPECTIVE by Jorge P. Gordin BA, The Hebrew University of Jerusalem, 1989 MA, The Hebrew University of Jerusalem, 1992 Submitted to the Graduate Faculty of Arts and Sciences in partial fulfillment of the requirements for the degree of Doctor of Philosophy University of Pittsburgh 2004 UNIVERSITY OF PITTSBURGH FACULTY OF ARTS AND SCIENCES This dissertation was presented by Jorge P. Gordin It was defended on 16 September 2004 and approved by B. Guy Peters William R. Keech Louis Picard Alberta M. Sbragia Dissertation Director ii Copyright © 2004 by Jorge P. Gordin iii UNRAVELING THE POLITICS OF DECENTRALIZATION: ARGENTINA AND SPAIN IN COMPARATIVE PERSPECTIVE Jorge P. Gordin, PhD University of Pittsburgh, 2004 This dissertation explores the politics of fiscal decentralization in comparative perspective. Case studies of Argentina and Spain are used to provide insights into the way that the distribution of institutional and economic resources in multitiered polities shapes the extent to which the policy of transferring revenue and revenue authority to subnational governments can be exploited for political gain. This approach draws attention to the political conditions that inhibit the coordination of fiscal reform efforts between the different levels of government and perpetuate the financing of subnational spending with revenue collected by the national government. This political context undermines national fiscal adjustment efforts and leads to economic catastrophes such as those experienced in Argentina throughout the last two decades. Specifically, this study uses statistical analyses and empirical institutional theory to show how patterns of territorial representation and bargaining strategies hindered revenue decentralization in Argentina but advanced it in Spain. The research suggests, first, coalition-building goals drive national executives in Argentina to reach out legislators of the opposition by means of allocating larger shares of federal transfers to the provinces the latter belong to. However, all else equal, legislatively overrepresented, i.e. economically marginal and sparsely populated, provinces will be targeted first. Second, the increasing role of regionalist parties in Spanish national politics and their acceptance in joint-policy mechanisms tilts the allocation of chosen federal transfers slightly in iv favor of economically developed and densely populated autonomous communities, which are generally governed by regionalist forces. Third, whereas Argentine subnational interests are “locked-in” at the Senate level and intergovernmental negotiations are conducted bilaterally, open-ended institutional arrangements and a relatively impotent senate in Spain boosted the redressing of regional concerns through informal intergovernmental fora and increasing multilateral collaboration Fourth, such differences in patterns of institutional representation and bargaining strategies explain the paucity of fiscal decentralization in Argentina and its relative progress in Spain. v TABLE OF CONTENTS PREFACE...................................................................................................................................... ix 1 Chapter 1: Introduction........................................................................................................... 1 1.1 Why Decentralization?.................................................................................................... 2 1.1.1 The Theoretical Argument...................................................................................... 4 1.1.1.1 Goals of this Dissertation.................................................................................... 7 2 Chapter 2: Institutional Sources of Fiscal Decentralization: “The Rules of the Game” and Subnational Politics ...................................................................................................................... 19 2.1 The Territorial Role of Political Institutions: Representation and Policy Scope of the Senate 19 2.1.1 The “Puzzle” ......................................................................................................... 19 2.1.1.1 Representation: Who and How?........................................................................ 21 3 Chapter 3: The Political Significance of Fiscal Decentralization......................................... 41 3.1 Why is Fiscal Decentralization Politically Important? ................................................. 45 3.1.1 Conceptualizing the Politicization of Fiscal Decentralization: The Role of Transfers 48 3.1.1.1 Types of Fiscal Decentralization: A Political Explanation............................... 55 4 Chapter 4: The Politics of Intergovernmental Transfers in Argentina: Time-series and Cross-sectional Analysis............................................................................................................... 63 4.1 The Argentine “Paradox”: Federalism, Political Spending and Fiscal Crises.............. 64 4.1.1 Understanding the Role of Political and Economic Factors in Argentine Intergovernmental Relations................................................................................................. 66 4.1.1.1 FONAVI ........................................................................................................... 67 5 Chapter 5: The Politics of Intergovernmental Transfers in Spain: Time-series and Cross- sectional Analysis ......................................................................................................................... 96 5.1 The Empirical Analysis................................................................................................. 99 5.1.1 Benevolent Central Planners or Strategic Politicians?: The Determination of Federal Transfers, Spanish Style........................................................................................... 99 5.1.1.1 The Limits to Redistribution: The Inter-AC Distribution of Intergovernmental Transfers in Spain ........................................................................................................... 110 6 Chapter 6: Conclusions and Implications ........................................................................... 121 APPENDIX A............................................................................................................................. 127 APPENDIX B ............................................................................................................................. 128 BIBLIOGRAPHY....................................................................................................................... 129 vi LIST OF TABLES Table 1: SENATE OVERREPRESENTATION (Stepan/Swenden data) ................................... 28 Table 2: SENATE OVERREPRESENTATION (SAMUELS/SNYDER DATA)....................... 29 Table 3: INTERGOVERNMETAL FISCAL INDICATORS ...................................................... 52 Table 4: DETERMINANTS OF FONAVI TRANSFERS: PANEL-CORRECTED REGRESSION RESULTS.................................................................................................... 80 Table 5: DETERMINANTS OF ATN TRANSFERS: PANEL-CORRECTED REGRESSION RESULTS ............................................................................................................................. 81 Table 6: THE DETERMINANTS OF FEDEI TRANSFERS: RESULTS OF CROSS-SECTION ANALYSIS........................................................................................................................... 90 Table 7: Parties in Central and AC Governments 1983-1999 .................................................... 104 Table 8: DETERMINANTS OF SUBVENCIONES GESTIONADAS: PANEL-CORRECTED REGRESSION RESULTS.................................................................................................. 107 Table 9: DETERMINANTS OF CONVENIOS DE INVERSION: PANEL-CORRECTED REGRESSION RESULTS.................................................................................................. 107 Table 10: THE DETERMINANTS OF SUBVENCIONES GESTIONADAS: RESULTS OF CROSS-SECTION ANALYSIS......................................................................................... 114 Table 11: THE DETERMINANTS OF CONVENIOS DE INVERSION: RESULTS OF CROSS- SECTION ANALYSIS....................................................................................................... 114 vii LIST OF FIGURES Figure 1: TYPES OF FISCAL DECENTRALIZATION............................................................. 57 Figure 2: CURVE FIT .................................................................................................................. 92 Figure 3: RELATIONSHIP BETWEEN SUBVENCIONES GESTIONADAS AND AC TRANSFER DEPENDENCE............................................................................................. 115 Figure 4: RELATIONSHIP BETWEEN CONVENIOS DE INVERSION AND AC TRANSFER DEPENDENCE .................................................................................................................. 116 viii PREFACE Over the time I have incurred into many debts with persons and institutions that made the fulfillment of this project possible. My greatest intellectual debt is to the political science faculty at Pitt. First, and foremost, I want to thank Alberta Sbragia for having accepted to tutor me throughout this dissertation and for being a model of what a graduate student’s mentor should be. Since I arrived as an international student to Pittsburgh,