Uneven impacts of lockdowns on municipal revenues of Chile

Published: 28 July 2021| Version 2 | DOI: 10.17632/shxjgf8v2n.2
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Description

This paper analyses the effect of the political decision to implement lockdowns on municipal revenues, with emphasis on the heterogeneous impact of this measure at the territorial and socio-economic level. The method used to determine the effect of the policy on the rate of income growth was panel data analysis with two-way fixed effects. The results indicate that all municipalities were affected by the pandemic, particularly, the impact of the policy at the territorial level was greater in metropolitan municipalities and large municipalities, while at the socio-economic level, municipalities with higher poverty rate had lower income growth. Based on these results, public policy recommendations are associated with the financial management of emergencies and changes in local institutions and intergovernmental relations. To estimate the impact of the lockdown on municipal revenues during the months of March to September 2020, the inter-annual growth rate of municipalities' own revenues is analysed, as it has the advantage of comparing municipalities at one point in time despite the great inequalities that exist, while analysing the fall in own revenues allows us to measure the effect of health policy on economic activity, as the distribution of the FCM is defined by formula and vertical transfers are discretionary and subject to political influence (Lara et al, 2017; Livert & Gainza, 2018, 2020; Corvalan et al ,2018). Studying the effect of the lockdown is interesting because it is a top-down policy, exogenous to the local decision that affects in the short term the local management of the health emergency and in the medium term the financial sustainability of the municipalities. This policy was applied in a differentiated manner among municipalities during the March-September period, in effect, 109 of the 345 municipalities in the country were affected; of the 109 municipalities, some were affected for 15 days and others for 100 days. To determine the incidence of the lockdown on the decrease in municipal revenues, panel data analysis and fixed effects are used for the 345 municipalities in the country and for the months of March to September. The commune fixed effect controls for those commune-specific factors that are fixed over time, and the month fixed effect controls for those factors that vary over time but are common to all communes. In each of the models the dependent variable is the inter-annual rate of own revenues, while the independent variable is lockdown, which is expressed on the one hand as a binary variable that is 1 when the municipality was under the policy and 0 otherwise, and on the other hand, and in order to understand whether there is an effect according to the days under a given policy, the lockdown variable is also expressed in the cumulative number of days that the municipality was under this policy, information that is collected from the epidemiological reports of the Ministry of Health.

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Steps to reproduce

The statistics on quarantine days are from the epidemiological reports of the Ministry of Health. While the financial data of the municipalities comes from the Undersecretariat of Regional and Administrative Development of Chile. The database is part of the article "Uneven impacts of lockdowns on municipal revenues: challenges in emergency financial management and local resilience" Revista Iberoamericana de Estudios Municipales.