IDEAS home Printed from https://ideas.repec.org/a/ere/journl/vxxviiy2008i2p89-110.html
   My bibliography  Save this article

Decentralization: Panacea or Pandora’s Box? Fiscal Perversity in Mexico

Author

Listed:
  • Roberto Guerrero Compeán

    (Department of Urban Studies and Planning, Massachusetts Institute of Technology.)

Abstract

Advocacy for decentralization has grown in Mexico at a rapid pace during the last decade. The gains of decentralization, however, are rather unclear and many times the assumptions and the outcomes of the process depart from the standard theory of fiscal federalism. There are serious drawbacks that should be considered before fully endorsing any decentralization program. As decentralization has progressed in Mexico, for instance, it has become evident that most of Mexican states have incurred in large fiscal deficits, majorly due to excessive overspending. This paper explains the reasons why such a trend has been observed in recent years based on a simultaneous equation model of state revenues and expenditures. The results suggest that increases in fiscal deficits are significantly associated with more intense political competition at the subnational sphere, the stage of the political business cycle, and fiscal perversity caused by political decentralization. This implies that regions expect to be bailed out by the federal government in case of financial trouble and thus do not have an incentive to observe fiscal discipline.

Suggested Citation

  • Roberto Guerrero Compeán, 2008. "Decentralization: Panacea or Pandora’s Box? Fiscal Perversity in Mexico," Ensayos Revista de Economia, Universidad Autonoma de Nuevo Leon, Facultad de Economia, vol. 0(2), pages 89-110, November.
    • Handle: RePEc:ere:journl:v:xxvii:y:2008:i:2:p:89-110
    as

    Download full text from publisher

    File URL: http://www.economia.uanl.mx/revistaensayos/xxvii/2/Decentralization-Panacea.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Xavier Calsamiglia & Teresa Garcia-Milà & Therese J. McGuire, 2004. "Why do Differences in the Degree of Fiscal Decentralization Endure?," Working Papers 193, Barcelona School of Economics.
    2. Molinar, Juan, 1991. "Counting the Number of Parties: An Alternative Index," American Political Science Review, Cambridge University Press, vol. 85(4), pages 1383-1391, December.
    3. Era Dabla-Norris, 2006. "The Challenge of Fiscal Decentralisation in Transition Countries," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 48(1), pages 100-131, March.
    4. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64, pages 416-416.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Germán-Soto, Vicente, 2005. "Generación del producto interno bruto mexicano por entidad federativa, 1940-1992," El Trimestre Económico, Fondo de Cultura Económica, vol. 0(287), pages 617-653, julio-sep.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Septimiu-Rares SZABO, 2017. "The Empirical Relationship Between Fiscal Decentralization And Economic Growth: A Review Of Variables, Models And Results," Management Research and Practice, Research Centre in Public Administration and Public Services, Bucharest, Romania, vol. 9(2), pages 47-66, June.
    2. Violeta Vulovic, 2010. "The effect of sub-national borrowing control on fiscal sustainability: How to regulate?," Working Papers 2010/36, Institut d'Economia de Barcelona (IEB).
    3. Soko Aida, 2018. "(Dis)Advantages af Decentralization Models Driven by Non-Economic Reasons: The Case of Bosnia and Herzegovina," South East European Journal of Economics and Business, Sciendo, vol. 13(1), pages 81-92, June.
    4. Petr Janský & Miroslav Palanský, 2016. "Fiscal decentralization and the shadow economy," WIDER Working Paper Series wp-2016-172, World Institute for Development Economic Research (UNU-WIDER).
    5. Andrés Rodríguez-Pose & Roberto Ezcurra, 2010. "Does decentralization matter for regional disparities? A cross-country analysis," Journal of Economic Geography, Oxford University Press, vol. 10(5), pages 619-644, September.
    6. Andrés Rodríguez‐Pose & Anne Krøijer, 2009. "Fiscal Decentralization and Economic Growth in Central and Eastern Europe," Growth and Change, Wiley Blackwell, vol. 40(3), pages 387-417, September.
    7. Alexeev, Michael (Алексеев, Майкл) & Mamedov, Arseny (Мамедов, Арсений) & Fomina, Evgenia (Фомина, Евгения) & Deryugin, Alexander (Дерюгин, Александр), 2017. "Influence of the Main Characteristics of Interbudgetary Relations on the Indicators of Economic Development of the Subjects of the Russian Federation [Влияние Основных Характеристик Межбюджетных От," Working Papers 031717, Russian Presidential Academy of National Economy and Public Administration.
    8. Petr Janský & Miroslav Palanský, 2016. "Fiscal decentralization and the shadow economy," WIDER Working Paper Series 172, World Institute for Development Economic Research (UNU-WIDER).
    9. Mark Partridge & M. Rose Olfert & Alessandro Alasia, 2007. "Canadian cities as regional engines of growth: agglomeration and amenities," Canadian Journal of Economics, Canadian Economics Association, vol. 40(1), pages 39-68, February.
    10. Salih Ozgur SARICA, 2014. "Regional Economic Growth. Socio-Economic Disparities among Counties," Journal of Economic Development, Environment and People, Alliance of Central-Eastern European Universities, vol. 3(4), pages 25-36, December.
    11. Chin Lim, 2003. "Public Good Contributions Between Communities," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 5(3), pages 541-548, July.
    12. Koichi Fukumura & Atsushi Yamagishi, 2020. "Minimum wage competition," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 27(6), pages 1557-1581, December.
    13. Kessing, Sebastian G. & Konrad, Kai A. & Kotsogiannis, Christos, 2006. "Federal tax autonomy and the limits of cooperation," Journal of Urban Economics, Elsevier, vol. 59(2), pages 317-329, March.
    14. Dwight Lee, 1985. "Reverse revenue sharing: A modest proposal," Public Choice, Springer, vol. 45(3), pages 279-289, January.
    15. Annie Tubadji & Peter Nijkamp, 2015. "Cultural impact on regional development: application of a PLS-PM model to Greece," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 54(3), pages 687-720, May.
    16. Barrow, Lisa & Rouse, Cecilia Elena, 2004. "Using market valuation to assess public school spending," Journal of Public Economics, Elsevier, vol. 88(9-10), pages 1747-1769, August.
    17. Sandy Fréret & Denis Maguain, 2017. "The effects of agglomeration on tax competition: evidence from a two-regime spatial panel model on French data," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 24(6), pages 1100-1140, December.
    18. Acocella Nicola & Di Bartolomeo Giovanni, 2013. "Population location, commuting and local public goods: A political economy approach," wp.comunite 0105, Department of Communication, University of Teramo.
    19. Hilber, Christian A.L., 2010. "New housing supply and the dilution of social capital," Journal of Urban Economics, Elsevier, vol. 67(3), pages 419-437, May.
    20. Natalie Brady, 2002. "Striking a Balance: Centralised and Decentralised Decisions in Government," Treasury Working Paper Series 02/15, New Zealand Treasury.

    More about this item

    Keywords

    decentralization; fiscal perversity; Mexico;
    All these keywords.

    JEL classification:

    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • R51 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Finance in Urban and Rural Economies

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ere:journl:v:xxvii:y:2008:i:2:p:89-110. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Dora María Vega Facio (email available below). General contact details of provider: https://edirc.repec.org/data/feualmx.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.