Subnational fiscal policy and economic cycles in Colombia

Autor o Editor
Diana Ricciulli-Marín
Jaime Bonet-Morón
Gerson Javier Pérez-Valbuena
Fecha de publicación

The opinions expressed in this document are those of the authors and do not necessarily reflect the views of Banco de la República or its Board of Directors.


This paper studies the relationship between subnational fiscal policy and economic cycles in Colombia. To do so, we estimate a dynamic panel data model for Colombian municipalities and departments during the period 1990-2018. The main findings show that, on average, subnational fiscal policy in Colombia was pro-cyclical in this period. However, results highlight lower pro-cyclicality following the main reforms to intergovernmental transfers and the introduction of subnational responsibility laws. The former led to a less pro-cyclical design of this source of revenues, while the latter fostered fiscal discipline and local finances' sustainability. Furthermore, we find evidence of higher pro-cyclicality of capital expenditures in less-developed municipalities and departments, which coincides with the increase in royalties' participation in this group of territorial entities.