High dependence on centralized natural resource transfers, like Peru's Canon system, limits the efficiency and accountability of subnational governments.

Look at Peru's dramatic landscapes. Half of the income tax collected from extractive industries is sent back to the regions as a transfer called the Canon. Yet, this wealth is highly concentrated, with Lima collecting twice the per capita revenue of intermediate cities. Because these subnational governments rely heavily on these pre-packaged transfers rather than raising their own taxes, their local efficiency drops. They escape the healthy discipline of borrowing and struggle to manage the volatile, unpredictable waves of resource wealth.