Puebla 2016// Fiscal Decentralization and Multidimensional Poverty Reduction in Colombia: A Spatial Approach

Fiscal decentralization as an instrument to reduce poverty is an open debate that still takes place with little and contradictory empirical evidence on whether or not it has served the poor. This paper analyses the effect of fiscal decentralization on multidimensional poverty in Colombia. We estimate the impact of municipalities’ own resources over the multidimensional poverty headcount ratio and the multidimensional poverty gap. An instrumental variable spatial autoregressive model with spatial autoregressive disturbances is implemented as empirical strategy to disentangle the causal effect of fiscal decentralization, while taking into account that multidimensional poverty exhibits strong spatial correlation among Colombian municipalities.