**2.1 Political reality of the city councils**

*Linear and Non-Linear Financial Econometrics - Theory and Practice*

transition in the nineties, into line with the new challenges.

with the greatest impact on such efficiency.

democratic and social conditions.

**2. Theoretical framework**

people and the clergy.

than 4000 km on the mainland and islands of Chile.

place in these territorial areas, all of a different nature and stretching across more

The objective of the following research is to select municipalities that are regional capitals with over 50,000 inhabitants, in order to determine the factors that influence the efficiency of these city councils in Chile, based on the quality of life index of the districts. To do so, an econometric model was developed to explain the specific factors of the efficiency of city councils in Chile, as well as the variables

We believe that this is a necessary yet seldom addressed dimension in Chile, in terms of the inputs that econometrics can provide, to move forward with better interdisciplinary perspectives in order to empower regional governments that promote human development in pursuit of sustainability and the best possible

In 2019, Chile experienced an outbreak of social unrest that began in October 2019, and was only interrupted by the arrival of the Covid-19 pandemic, in March 2020. This period of mobilization prior to the coronavirus, marked by ongoing protests throughout the country, demanded a new social and political pact, substantiated on the lost credibility of government institutions, politicians, business

The crisis was felt with unexpected force and presence in the streets and major public areas of the regional capitals, particularly in those with larger populations. The citizenry demanded better conditions for old-age pensions, access to healthcare, protection against market abuse and gender-based violence, among other things. These social causes have tended to come together under feelings of indignation that have sparked off a demand to end the most urgent inequalities and to bring greater dignity to the population. This has led to articulating the need for a more systematic change, driven by the demand for a new Political Constitution. During the most critical times of the social unrest, between October and December 2019, with episodes of public violence and obvious problems of governance at the central level, the city councils proved to be a strategic political space by building bridges to address the citizens' malaise. They showed a greater sensitivity and capacity for participation with different stakeholders and organizations of the local territories. The municipalities also made their resources available to help unblock the lack of social dialog and revert an increasing political polarization.

With the onset of the health emergency in Chile in March 2020, the city councils

once again became important spheres for social and political-media leadership, requesting the central government to implement quarantine measures, for greater coordination with the public health system, and urgent economic support plans for Covid-19, in response to public concern about the quick propagation of the virus.

Nevertheless, the Chilean political system maintains its marked presidentialism and has not been able to move forward towards a decisive decentralization. Highranking officials, such as regional and provincial governors, continue to be designated in accordance with criteria defined in the country's capital or by elite groups. The OECD [1] points out that Chile has a long tradition of centralism, with an administration system associated with economic efficiency and political stability. However, there are discussions on the need to improve regional performance and competitiveness from a necessarily decentralizing role [2], capable of bringing the country, that received international recognition for its political and economic

**272**

At present, there are 345 municipalities in Chile and they are defined in the Constitution as "autonomous public law corporations with legal status and their own assets. Their objective is to satisfy the needs of the local community and ensure their participation in the economic, cultural and social development" [3].

The Constitutional Organic Law of Municipalities N°18.695 specifically regulates the most important aspects of the communal administration. For instance, it establishes the existence of a mayor and a city council, along with their respective functions and powers. However, there are numerous laws that regulate other aspects.

According to political theory, Chile's municipalities constitute a public service that operate as a decentralized State body and are the State's closest visible face for its citizens [4]. However, the concentration of the Chilean political system is evident in the difference established between the government and the administration.

The government has the capacity for political decision-making, while the administration is a more limited concept and is further removed from political power. In fact, government powers in the territories are in the hands of the regional and provincial governors (chosen by the president in office) and those of the mayors are only for the municipal administration of their communes or cities [4].

A local government, as a political body of representation and not only of the administrative kind, is vested with the right of its municipalities to take certain decisions without the authorization or interference of the central government. In other words, [5] with its actions, a municipality can have independent effects on significant aspects of a specific community.

#### **2.2 In search of decentralization**

In 2009, a process began to implement territorial decentralization through a series of legal changes, in pursuit of the election of regional counselors (regulated in 2013) and governors (suspended due to Covid-19, although regulated in 2018), along with establishing a system to transfer competences to regional governments (formalized in 2018). For some authors, this has meant progress, from a model of deconcentrated transiting towards one of territorial decentralization, as these laws would allegedly favor the modification of regional administration and the relationship of vertical political power [2, 6].

However, the Regional Authority Index [7], which compares the degree of decentralization between different countries, ranks us in 52nd place out of 63. This position is similar to nations of a smaller scale and population such as Ireland and Lithuania. Explanations could argue that Chile is compared with countries

of a very different size and institutional regime. But if we limit the comparison to OECD unitary states with more than 3 million inhabitants, the results do not improve [8].

Maintaining a tendency towards centralization may bring about negative effects. For example, it creates administrative inefficiencies when requesting permits that need to be approved at the central level, hindering the possibility of innovation in public policies, due to the lack of competences and economic resources. It also limits economic growth and productivity, generating territorial imbalances and inequalities, where some regions are winners and others lag behind [8].

One of the most specific aspects for true decentralization, that seeks to favor the power of municipalities, lies in transferring the competence and decision-making capacity, including, most notably, on budgetary matters, which "are fundamental and unavoidable" [9].

The efficiency of the Chilean State's resources should focus on a better connection with local spheres and study, in turn, what municipalities are doing with their administrations and how their decisions are impacting their respective communities. In fact, the OECD [1] pointed out that, in Chile, centralization hampers the development of the country.

#### **2.3 Economic dimension**

As for the economic situation, municipalities have several sources of income that can be differentiated between own funds and external funds [10]. While own funds consist of the Municipal Common Fund and Permanent Own-Source Income, external funds include those transferred to municipalities for programs or projects promoted by the central government and executed by local governments [11].

The Municipal Common Fund (FCM) is regulated by Law N°20.237, the abovementioned Constitutional Organic Law of Municipalities (LOCM) and Decree N°1293 of the Ministry of the Interior of 2009. Law N°20.033 established that, as of 2005, a fixed monetary contribution from the central government for 218.000 UTM (approximately 11 billion Chilean pesos, or US\$13.5 million) would be made to the FCM [11].

It is worthwhile mentioning that the Municipal Common Fund is defined by the Political Constitution of the Republic (Article 122) as a "mechanism for the solidary redistribution of own incomes among the municipalities of the country" [11].

## **2.4 Political efficiency**

The concept of efficiency applied to interdisciplinary dialog from the point of view of political and administrative theory, becomes especially important in times of crisis and empowerment of the people in their local setting.

Political efficiency is linked to "a government's capability, competence or potential to establish guidelines that lead to objectives considered to be valid by a society at a specific time" [12]. City councils, on this level, are an institutional and operational power that, within their areas of impact, enables to achieve socially accepted and legally enshrined objectives.

At the level of public management, administrative efficiency is legitimatized when it receives public recognition [13]. Citizen support of a State is largely the result of a performance that is perceived as efficient and effective, as for example, when it reduces poverty, unemployment or inequality. Hence, the democratic apparatus is strengthened and the people perceive that the performance of a municipality is coherent or fair. Public management creates a value [12], as long as there also is

**275**

**Table 1.**

*Source: Own creation.*

*Final model parameter estimation.*

*Efficiency of the City Councils Using Cross-Sectional Model: Challenges in Times of Change…*

political communication that sets out these advances or achievements in a credible

The discussion between efficiency and democracy, under the perspective of legitimacy [14], understood as the capacity of political systems to generate, on the one hand, citizen representation and political responsibility (input-oriented legitimacy), and on the other, satisfactory results of public policies (output-oriented

In fact, there is a third dimension of legitimacy that refers to the decisionmaking procedure (throughput legitimacy), given by transparency, the degree of openness and of inclusion [16]. The concept of representative democracy expands when examining in-depth analyses on how decisions are taken and whether they include deliberative democracy instruments that allow greater participation of all

This study determines the factors that influence the efficiency of city councils in Chile, in terms of the Quality of Life Index of the communities. To do so, an econometric model was developed to explain the determinants of the efficiency of city councils in Chile, and to identify the variables that have the greatest impact on such efficiency. Municipalities that are regional capitals, with over 50,000 inhabitants,

The efficiency model of the city councils demonstrates that, as described earlier, there is a growing interest in these entities in search of decentralization in Chile, as a way of strengthening the regions and to stop holding back the country's development [18], which to a large extent could be carried out through efficient city councils. Therefore, arriving at the factors that determine the efficiency of the city council is of great importance, as it shows us the aspects that require special attention. New public policies focused on these aspects would increase the favorable perception of municipal management and, more importantly, the quality of life of

For the purposes of this research, a series of variables that are linked to the efficiency of Chilean municipalities will be included. Within this selection, variables stand out that have been a priority concern of citizens and that have tried to be incorporated into the country's public policies. We refer, as shown in the final model (**Table 1**), to the Municipal Common Fund (FCM), Permanent Own-Source Income (IPP), rate of domestic violence, average University Selection Test (PSU)

**Variable Coefficient Std. error t-Statistic p-Value** RateDomesticViolence −0.013222 0.004051 −3.263793 0.0016 OwnIncomesIPP 1.12E-07 3.26E-08 3.433896 0.0009 FCM −2.15E-07 7.71E-08 −2.789977 0.0065 Overcrowding −79.50409 17.53457 −4.534135 0.0000 Average PSU 16.36778 4.456570 3.672732 0.0004 PopulationDensity −0.000430 0.000117 −3.668260 0.0004 C 59.43797 4.688335 12.67784 0.0000

legitimacy) [15], is still valid in the current contexts we are analyzing.

*DOI: http://dx.doi.org/10.5772/intechopen.93655*

public and private stakeholders [17].

**2.5 Efficiency model**

were selected for this study.

score, overcrowding and density.

the people.

and plain way.

*Efficiency of the City Councils Using Cross-Sectional Model: Challenges in Times of Change… DOI: http://dx.doi.org/10.5772/intechopen.93655*

political communication that sets out these advances or achievements in a credible and plain way.

The discussion between efficiency and democracy, under the perspective of legitimacy [14], understood as the capacity of political systems to generate, on the one hand, citizen representation and political responsibility (input-oriented legitimacy), and on the other, satisfactory results of public policies (output-oriented legitimacy) [15], is still valid in the current contexts we are analyzing.

In fact, there is a third dimension of legitimacy that refers to the decisionmaking procedure (throughput legitimacy), given by transparency, the degree of openness and of inclusion [16]. The concept of representative democracy expands when examining in-depth analyses on how decisions are taken and whether they include deliberative democracy instruments that allow greater participation of all public and private stakeholders [17].

## **2.5 Efficiency model**

*Linear and Non-Linear Financial Econometrics - Theory and Practice*

ties, where some regions are winners and others lag behind [8].

improve [8].

and unavoidable" [9].

development of the country.

**2.3 Economic dimension**

ments [11].

FCM [11].

**2.4 Political efficiency**

of a very different size and institutional regime. But if we limit the comparison to OECD unitary states with more than 3 million inhabitants, the results do not

Maintaining a tendency towards centralization may bring about negative effects. For example, it creates administrative inefficiencies when requesting permits that need to be approved at the central level, hindering the possibility of innovation in public policies, due to the lack of competences and economic resources. It also limits economic growth and productivity, generating territorial imbalances and inequali-

One of the most specific aspects for true decentralization, that seeks to favor the power of municipalities, lies in transferring the competence and decision-making capacity, including, most notably, on budgetary matters, which "are fundamental

The efficiency of the Chilean State's resources should focus on a better connection with local spheres and study, in turn, what municipalities are doing with their administrations and how their decisions are impacting their respective communities. In fact, the OECD [1] pointed out that, in Chile, centralization hampers the

As for the economic situation, municipalities have several sources of income that can be differentiated between own funds and external funds [10]. While own funds consist of the Municipal Common Fund and Permanent Own-Source Income, external funds include those transferred to municipalities for programs or projects promoted by the central government and executed by local govern-

The Municipal Common Fund (FCM) is regulated by Law N°20.237, the abovementioned Constitutional Organic Law of Municipalities (LOCM) and Decree N°1293 of the Ministry of the Interior of 2009. Law N°20.033 established that, as of 2005, a fixed monetary contribution from the central government for 218.000 UTM (approximately 11 billion Chilean pesos, or US\$13.5 million) would be made to the

It is worthwhile mentioning that the Municipal Common Fund is defined by the Political Constitution of the Republic (Article 122) as a "mechanism for the solidary redistribution of own incomes among the municipalities of the country" [11].

The concept of efficiency applied to interdisciplinary dialog from the point of view of political and administrative theory, becomes especially important in times

Political efficiency is linked to "a government's capability, competence or potential to establish guidelines that lead to objectives considered to be valid by a society at a specific time" [12]. City councils, on this level, are an institutional and operational power that, within their areas of impact, enables to achieve socially

At the level of public management, administrative efficiency is legitimatized when it receives public recognition [13]. Citizen support of a State is largely the result of a performance that is perceived as efficient and effective, as for example, when it reduces poverty, unemployment or inequality. Hence, the democratic apparatus is strengthened and the people perceive that the performance of a municipality is coherent or fair. Public management creates a value [12], as long as there also is

of crisis and empowerment of the people in their local setting.

accepted and legally enshrined objectives.

**274**

This study determines the factors that influence the efficiency of city councils in Chile, in terms of the Quality of Life Index of the communities. To do so, an econometric model was developed to explain the determinants of the efficiency of city councils in Chile, and to identify the variables that have the greatest impact on such efficiency. Municipalities that are regional capitals, with over 50,000 inhabitants, were selected for this study.

The efficiency model of the city councils demonstrates that, as described earlier, there is a growing interest in these entities in search of decentralization in Chile, as a way of strengthening the regions and to stop holding back the country's development [18], which to a large extent could be carried out through efficient city councils. Therefore, arriving at the factors that determine the efficiency of the city council is of great importance, as it shows us the aspects that require special attention. New public policies focused on these aspects would increase the favorable perception of municipal management and, more importantly, the quality of life of the people.

For the purposes of this research, a series of variables that are linked to the efficiency of Chilean municipalities will be included. Within this selection, variables stand out that have been a priority concern of citizens and that have tried to be incorporated into the country's public policies. We refer, as shown in the final model (**Table 1**), to the Municipal Common Fund (FCM), Permanent Own-Source Income (IPP), rate of domestic violence, average University Selection Test (PSU) score, overcrowding and density.


#### **Table 1.** *Final model parameter estimation.*
