Is Local Beautiful? Decentralization in Mexico in the Presence of Elite Capture

Based on growing theoretical literature, we present evidence from Mexico regarding the weak effectiveness of federal transfers and low absorption capacity of states and municipalities in poor countries in the presence of corruption and opportunistic behavior. We show that the distribution of conditional transfers is discretionary due to the lack of accountability and deficiency in institutional frameworks, which may be cause for opportunistic behavior by political elites. The results suggest that the distribution of funds based on poverty levels, and intended to provide for the social infrastructure to poor communities, may partly be defined by size of municipality, which in turn may be politically motivated, given that larger populations are politically more profitable during the election process. We present, that in essence, this may be considered elite capture. Additionally, we find that distribution of anti-poverty, community-based development funds (CBDF) do not necessarily reach the poorest populations. We find that within municipalities CBDFs are disbursed to communities with larger populations, regardless the level of coverage for various public services, such as electricity, potable water, drainage, etc.