Recent research suggests that intergovernmental grants, own-source revenues, and changes in government investment play an important role in helping local governments in advanced economies to adjust their fiscal positions in response to budget shocks. At the same time, little is known about the...

The aim of this paper is to analyze how local governments in Colombia adjust their fiscal positions in response to budget imbalances. Using a panel data set of more than 450 municipalities and 26 departments over the period 1993 to 2013, I estimate a vector error-correction model in order to...