This chapter analyzes the spatial interactions induced by fiscal decentralization policies and their respective impacts on regional growth. It assesses the economic effects of alternative scenarios of regional allocation of Colombia’s current interregional transfers scheme through simulations with the CEER model. Highlighting potential trade-offs between regional equity and efficiency, the simulations contribute to analyzing the growth impact related to some of the broad objectives central governments pursue when allocating subnational transfers to local governments. Changes in the distribution of central national government transfers in an environment that allow for labor mobility between regions can drive migration from less productive regions to more productive regions, affecting regional production and growth.
