Decentralization: Panacea or Pandora’s Box? Fiscal Perversity in Mexico
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.
Volume (Year): XXVII (2008)
Issue (Month): 2 (November)
|Contact details of provider:|| Postal: |
Phone: +52 (81) 8329 4150
Fax: +52 (81) 8342 2897
Web page: http://www.economia.uanl.mx
More information through EDIRC
|Order Information:|| Email: |
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Xavier Calsamiglia & Teresa Garcia-Milà & Therese J. McGuire, 2006.
"Why do Differences in the Degree of Fiscal Decentralization Endure?,"
CESifo Working Paper Series
1877, CESifo Group Munich.
- Xavier Calsamiglia & Teresa Garcia-Milà & Therese McGuire, 2004. "Why do Differences in the Degree of Fiscal Decentralization Endure?," Working Papers 193, Barcelona Graduate School of Economics.
- Xavier Calsamiglia & Teresa Garcia-Milà & Therese J. McGuire, 2004. "Why do differences in the degree of fiscal decentralization endure?," Economics Working Papers 865, Department of Economics and Business, Universitat Pompeu Fabra.
- Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64, pages 416.
- Era Dabla-Norris, 2006. "The Challenge of Fiscal Decentralisation in Transition Countries," Comparative Economic Studies, Palgrave Macmillan, vol. 48(1), pages 100-131, March.
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.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dora María Vega Facio)
If references are entirely missing, you can add them using this form.