Constraints to Effective Fiscal Decentralization in Peru

Peru represents a laboratory for examining the different approaches to the centralized or decentralized delivery of public services over the past quarter of a century. There is a renewed and increasing interest in decentralization in Peru as a mechanism to generate more involved decision making at the sub-national level. This is tempered with a continuing emphasis on overall fiscal stability. Learning from the lessons of the ongoing decentralization, there is a recognition that considerable work needs to be undertaken to more clearly define expenditure responsibilities and financing mechanisms that would increase local accountability. In addition, improved expenditure management at all levels of government is needed. The paper suggests that there is a pending work agenda to grasp the benefits of the decentralization process, including the reduction in inequality and poverty across regions.