Are Presidential Elections Relevant for Local Public Spending? Evidence from Mexico

Intergovernmental transfers in Mexico represent 84% of income of state and local governments and finance fundamental local public programs in that country. In this paper, we investigate the influence of federal elections and political institutions, such as party affiliation and the control of the national executive over Congress, on the federal budget allocated to state and local governments in Mexico. Our findings reveal that both, election years and the second year of a new national administration, significantly increase federal transfers to subnational governments. Furthermore, presidential elections have a notable impact on state and local budgets, particularly when the ruling parties align with the left or center-left of the political spectrum, resulting in increased resource allocation to subnational governments. Conversely, when a single party controls the national Congress, federal transfers to state and local governments decrease, possibly due to reduced political incentives to support legislators from various regions.