Armed conflict and corruption: The dark side of fiscal decentralisation in Colombia

Fiscal decentralisation promises to bring government closer to citizens and reduce regional inequalities, but its success depends on the institutions receiving these powers. Drawing on departmental data from Colombia between 2005 and 2020, Jaime E. Ávila-Álvarez, Beatriz Cuadrado-Ballesteros, and Jennifer Martínez-Ferrero examine how armed conflict and corruption undermine these ambitions, allowing public resources to be captured by armed groups and local elites. Their findings, which summarise a recently published article in Regional & Federal Studies, highlight the importance of strengthening subnational state capacity and accountability if fiscal autonomy is to support more equitable territorial development.

The promise versus reality of decentralisation

Following the enactment of its 1991 Constitution, Colombia embarked on one of the most ambitious decentralisation processes in Latin America. Designed to dismantle a legacy of rigid centralism, this reform transferred expansive fiscal, administrative, and political responsibilities to the nation's thirty-two departments and over one thousand municipalities. As foundational economic theory by Wallace Oates posits, subnational authorities, situated closer to their citizens, allocate public resources more efficiently and spur regional economic convergence. 

However, three decades later, territorial economic disparities across the country remain deeply entrenched rather than diminished. Despite the transfer of billions of pesos through the Sistema General de Participaciones (SGP) and the progressive expansion of subnational revenue-raising powers, territorial economic disparities in Colombia have not been reduced; rather, they have become ingrained. While the central departments and the capital (Bogotá) have capitalized on increased autonomy to catalyze economic growth, peripheral departments, such as Chocó, La Guajira, and those in the Amazonian and Orinoquía regions, remain trapped in structural economic stagnation. This divergence directly challenges the foundational promises of the decentralization framework and raises a critical question: Why has decentralization, theoretically designed to mitigate regional inequality, failed to achieve territorial convergence in Colombia?

Groundbreaking empirical research by Andrés Rodríguez-Pose and Roberto Ezcurra further emphasizes that fiscal devolution can widen regional gaps when subnational state capacity is unevenly distributed across territories. While traditional fiscal federalism theory, pioneered by Oates’s seminal theorem, posits that subnational governments maximize economic efficiency due to information advantages, it assumes strong subnational state capacity with robust accountability mechanisms. Nevertheless, in Colombia, the devolution of fiscal powers coincided with the intensification of two profound subnational frictions: internal armed conflict and systemic corruption.

Colombia faces one of the longest continuously active internal armed conflicts in Latin America, resulting in over 8.5 million displaced persons and nearly 219,000 fatalities across more than six decades. These figures highlight an environment of persistent warfare that severely hampers the execution of public policy, particularly at the regional level. Furthermore, the period between 2005 and 2020 reflects critical realignments in the conflict's dynamics. These structural shifts are deeply intertwined with Colombia’s system of governance; as a decentralised unitary state, primary duties regarding public investment, service delivery, and development policy rest with subnational authorities. Such hostilities severely obstruct these administrative functions by enabling illegal armed factions to siphon off state funds to finance their operations.

Additionally, Colombia places 99th among 182 countries in Transparency International’s 2025 Corruption Perceptions Index (CPI), the leading global standard for measuring corruption. This issue extends beyond the national level and is particularly acute in departamentos. Local elites misappropriate resources allocated for regional development to serve private interests, effectively curtailing the reach of public policy.

Two sides of the same coin

Rather than fitting public goods to the needs of the population, the influx of decentralized fiscal flows into violent and corrupt territories then provides a lucrative target for armed actors, who exploit weak public oversight to engage in localized rent-seeking and the violent capture of public funds.

When fiscal resources flow into territories disrupted by active conflict, the expected transmission mechanism from subnational autonomy to economic convergence breaks down entirely. Non-state armed actors and criminal groups exploit weak subnational oversight to engage in systematic rent-seeking and the violent capture of municipal budgets. This phenomenon, often described as armed clientelism, turns public transfers into lucrative targets for illegal groups seeking to consolidate local territorial control. Furthermore, persistent violence destroys critical infrastructure, repels private investment, and forces subnational governments to divert scarce funds toward security emergencies rather than essential social spending.

Systemic corruption operates through a similarly destructive channel by enabling regional political elites and patronage networks to hijack public revenues. Where subnational auditing mechanisms are weak, fiscal autonomy multiplies opportunities for bribery, elite capture, and opaque public procurement practices. Consequently, financial resources intended for healthcare, education, and basic infrastructure are siphoned off, leaving vulnerable populations without quality public services.

Empirical insights 

An empirical analysis of departmental data across Colombia from 2005 to 2020 confirms that the distributive outcome of fiscal decentralisation is strictly conditional upon subnational state capacity. While fiscal autonomy displays modest equalizing potential under strong governance conditions, this positive effect is entirely neutralized in departments afflicted by high conflict intensity or widespread corruption. In fact, granting expanded budgetary discretion to regions plagued by violence and weak integrity actively accelerates territorial divergence and deepens spatial divides. 

Remote departments in the Amazonian and Orinoquía regions continuously struggled with low tax collection bases and high reliance on central transfers, which were frequently co-opted by local elites. Conversely, departments with stronger administrative institutions and lower conflict levels effectively converted fiscal autonomy into productive public goods. This stark contrast highlights that fiscal decentralisation in the absence of institutional safeguards acts as a catalyst for inequality rather than a remedy. 

Reimagining territorial governance and policy frameworks

These insights offer crucial policy lessons for international financial institutions and national planners who routinely promote fiscal devolution in developing nations. Transferring budgetary authority cannot be treated as an isolated panacea for regional backwardness or post-conflict reconstruction. Instead, national governments must prioritise the prior consolidation of subnational state capacity, administrative transparency, and local judicial enforcement. Without these institutional foundations, expanding regional budgets risks enriching predatory local actors while leaving peripheral communities further behind.

To ensure that decentralisation achieves its redistributive goals, future policy frameworks must integrate rigorous vertical auditing and real-time public procurement monitoring. Shielding subnational financial flows from illegal armed capture and elite patronage requires strengthening local civil society, independent media, and regional oversight bodies. National planning authorities should also align intergovernmental transfers with verified governance benchmarks rather than unconditional budgetary allocations. Only when subnational state capacity is firmly established can fiscal autonomy truly serve as a powerful engine for inclusive territorial development.

Ultimately, achieving spatial equity in decentralized states requires looking beyond aggregate budgetary transfers to focus on the institutional integrity of regional governance. By safeguarding public funds from conflict-driven capture and systemic corruption, policymakers can transform fiscal decentralisation into a meaningful tool for sustainable peace and shared prosperity. Ensuring that local institutions are robust, transparent, and accountable remains the indispensable prerequisite for unlocking the true potential of regional autonomy. Addressing these institutional vulnerabilities will allow decentralized governance to fulfill its original promise of balanced, equitable growth across all territories.

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Jaime E. Ávila-Álvarez is an Assistant Professor at the University of Antonio Nariño (Colombia). He earned his PhD in Business Economics at the University of Salamanca (Spain). His research interests include fiscal decentralization, governance, and regional and territorial development.

Beatriz Cuadrado-Ballesteros is a Full Professor in Accounting at the University of Salamanca (Spain), where she earned her PhD in Business Economics. Her research interests are public management and public sector reforms, as well as topics related to political economy.

Jennifer Martínez-Ferrero is a Full Professor in Accounting at the University of Salamanca (Spain), where she earned her PhD in Business Economics. Her research interests are sustainability, assurance, corporate governance, as well as topics related to gender diversity and narcissism.

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Note: this post represents the views of the authors, and not those of Regional & Federal Studies, the Centre on Constitutional Change, or the University of Edinburgh. 

Image credit: sunset over the Amazon river near Leticia, Colombia by Pedro Szekely, CC BY-SA 2.0, via Wikimedia Commons